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[ 2010-06-07 ]

Enquiries mount after PwC ‘failed to notice’ mistakes
London (UK) – 07 June 2010 – The Times -
PricewaterhouseCoopers is facing an enquiry by accounting
regulators into its failure to notice that JP Morgan was
paying up to £16 billion of clients’ money into the wrong
bank accounts.

Last week the Financial Services Authority fined the
investment bank £33.3 million — the largest penalty that the
City regulator has imposed — for breaches of client money
rules under which customers’ funds became mixed with the
bank’s own cash over a seven-year period.

PwC, JP Morgan’s auditor, is now likely to be drawn into
another inquiry by the two professional bodies that oversee
accountants, the Financial Reporting Council and the
Institute of Chartered Accountants in England and Wales.

In addition to serving as principal auditor, PwC was
retained by JP Morgan to produce an annual client asset
returns report — a yearly certification to prove that
customers’ funds were being effectively ring-fenced and
therefore protected in the event of the bank’s collapse. But
PwC signed off the client report even though JP Morgan was
in breach of the rules.

It is understood that the FSA plans to pass on the details
of its own investigation to both the FRC and ICAEW, which
will then determine whether any further action is

The treatment of clients’ money by banks has been in the
spotlight since the collapse of Lehman Brothers. Thousands
of customers, including many hedge funds, saw their funds
trapped in the failed bank and as a result went bust or
suffered severe liquidity issues.

The FSA recently created a task force to investigate the
treatment of clients’ money and has written to chief
executives of finance firms and warned their auditors to be
more vigilant.

The money at risk in this case consisted of funds held by
customers of JP Morgan’s futures and options business — a
sum that varied from £1.3 billion to £15.7 billion between
2002 and July 2009, when the breach came to light. PwC did
not comment.

Investment Bank fined £33.3m for client funds error
London (UK) – 04 June 2010 – The Times - The Financial
Services Authority has fined JP Morgan £33.3 million — its
largest ever financial penalty against a company — for
failing to keep clients’ money in a separate account.

The error went undetected for seven years and, if the bank
had gone bust during that time, clients could have lost
their money. the FSA said.

Banks’ treatment of clients money has been in the spotlight
since the collapse of Lehman Brothers. Thousands of
including many hedge funds, saw their funds trapped in the
failed bank and as a consequence themselves went bust or
suffered severe liquidity problems.

The FSA said yesterday that during the period between
December 2002 and October 2008 JP Morgan client balances
fluctuated between $1.9 billion (£1.3 billion) and $23

The fine is equivalent to 1 per cent of the average amount
of money that was not properly separated. The penalty was
reduced by 30 per cent from £47.6 million because JP Morgan
“worked constructively” with the regulator during the

The fine is being levied against JP Morgan Securities
(JPMSL) over money held in its futures and options
The error occured after the merger of JP Morgan and Chase.

The FSA has in the past couple of years stepped up its
pressure on banks, asset managers and stockbrokers over
their treatment of clients’ money.

It has created a special task force to investigate
in this area and has written to chief executives of
financial firms and their auditors warning them to be much
more vigilant. Firms are meant to keep clients’ money
separate at all times and maintain legal agreements and
paperwork to a high standard so that they know what clients
funds they are holding at all times. These funds can be in
the form of money or other investments such as securities.

Margaret Cole, FSA director of enforcement and financial
crime, said: “JPMSL committed a serious breach of our
money rules by failing to segregate billions of dollars of
its clients’ money for nearly seven years.”

Sally Dewar, FSA managing director of risk, said: “It is
crucial that firms are compliant with the FSA’s client
and assets rules. The creation of a specific unit (within
the FSA) means that firms need to raise their game as the
FSA’s focus on this area will continue to intensify.”

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