Inquiries mount after PwC ‘failed to notice’ mistakes

PricewaterhouseCoopers is facing an inquiry 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 necessary.

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.