One of the Big Four accounting bodies has been fined £ 13million by the regulator, “severely reprimanded” and ordered to appoint an independent reviewer. As part of this process, the reviewer will perform a root cause review to determine why compliance threats have not been identified and protected against this agreement. In addition to this, they will review the various policies, procedures and training programs relating to KPMG’s consulting practices.
David Costley-Wood, former partner and director of KPMG Manchester Restructuring, was also fined. He was fined £ 500,000, severely reprimanded, expelled from the Institute of Chartered Accountants of England and Wales for 13 years and held an insolvency license for the same period.
All of this stems from a referral to The Pensions Regulator (TPR) and an investigation by the Accountancy Scheme into Costley-Wood’s conduct in relation to the Silentnight group of companies between August 2010 and April 2011. Following this, a court made misconduct findings following a four-week hearing between November and December 2020, with penalties being determined following a hearing in June 2021.
The court made its findings of misconduct with respect to the breaches of objectivity and integrity, calling KPMG’s involvement with Slientnight “deeply troubling.” He also said the firm had not acted solely in the best interests of its client, concluding that the lack of objectivity in the matter was at the heart of the relationship between Silentnight and KPMG.
It also noted that between August 16, 2010 and January 14, 2011, Costley-Wood advised or assisted both companies regarding a proposed acquisition of Silentnight by HIG at a time when there was a conflict of interest between the interests of both companies. As a result, the respondents’ judgment was compromised and objectivity was impaired.
According to the court’s findings, Costley-Wood was instrumental in a strategy designed to drive Silentnight into or to the brink of an insolvency process – which he describes as a “burning platform.” This was done with the aim of transferring the Silentnight pension plan to the Pension Protection Fund (PPF) at the expense of pension plan members and PPF contribution payers.
On top of that, respondents failed to consider the self-interest and familiarity threats that stemmed from their relationship with HIG and their desire to nurture that part as a client and keep it at. the gap. Costley-Wood was aware of the importance of HIG’s potential relationship to KPMG throughout.
Costley-Wood, he says, has also dishonestly advanced and associated himself with false and misleading or materially incomplete statements to PPF, TPR, Silentnight and the Trustees of the Silentnight Pension Plan as to the causes of Silentnight’s hardship. The court said this was done in order to assist HIG in its efforts to allow Silentnight to discharge its liability under the cheapest pension plan possible.
As KPMG is legally responsible under the accounting regime for the conduct of Costley-Wood, the findings of misconduct made against the professional services firm by the court regarding the same issues. Another allegation made by the FRC was not upheld by the court, however.
In determining the penalties, the court said the misconduct was “very serious”, stating that – to a professional accountant – the conflicts of interest should have been “obvious” and risked the loss of significant sums of money. He also considered it had endangered Silentnight’s ability to survive and tens of millions of pounds in creditors’ claims.
Commenting on the sanctions, FRC Executive Advisor and Executive Director of Law Enforcement Elizabeth Barrett said: “The scale and scope of the sanctions imposed by the court testify to the seriousness of the misconduct in this case. . The ruling serves as an important reminder of the need for all members of the profession to act with integrity and objectivity and of the dire consequences when they fail to do so.
In addition to its penalties, the court ordered KPMG to pay £ 2.45million for executive attorney fees for the investigation as well as court costs – amounting to an additional £ 305,814.
Credit strategy has contacted KPMG for comment. In response, a cabinet spokesperson said: “We take note of the tribunal’s findings and regret that the professional standards we expect from our partners and colleagues have not been met in this case. David Costley-Wood has retired from the firm and although we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago.
“As a company, we are committed to the highest standards and continually invest in our people and procedures to ensure that potential conflicts of interest are identified and effectively managed. We welcome the additional review process outlined by the FRC and remain focused on building trust and delivering the highest quality work. “