FRC set to fine KPMG £15m over alleged misconduct in sale of Silentnight

FRC set to fine KPMG £15m over alleged misconduct in sale of Silentnight

The Financial Reporting Council (FRC) is seeking a £15 million fine against Big Four audit firm KPMG after a draft tribunal report highlighted misconduct in its sale of Silentnight to private equity firm HIG.

The accountancy regulator is also pursuing a fine of at least £500,000 against David Costley-Wood, the former restructuring partner involved in the sale, as well as a ban from his membership of the Institute of Chartered Accountants in England and Wales (ICAEW) for 15 years and from an insolvency licence for 15 years.

The draft tribunal report stated that KPMG and Costley-Wood advised both Silentnight and HIG despite an “obvious” conflict of interest between the two businesses, The Times reports. 

The tribunal believes that KPMG and Costley-Wood “lost their objectivity” by favouring HIG as a buyer for the firm and helped HIG in its plan to transfer the £100 million pension scheme to the government-backed Pension Protection Fund, despite the conflict.

The FRC alleged in its submission that the two were motivated by a desire to “nurture HIG as a client and keep HIG onside” and Costley-Wood “was conscious of the importance of the potential relationship of HIG to KPMG”.

If agreed, the potential fine would be a joint record after rival firm Deloitte was fined £15m by the FRC last year for its failures in its audits of Autonomy.

Silentnight was in financial difficulty before the deal was agreed and KPMG believes its actions did not cause any loss to pensioners or third parties.

In its submission, KPMG said there was no finding that they caused Silentnight’s financial distress. The firm said that while the draft report “does not make any findings about KPMG’s policies or procedures themselves” they wrote to the FRC’s executive counsel last month “inviting them to identify any policy deficiencies which need to be remedied”.

A spokesperson for KPMG UK told Scottish Financial News: “The Tribunal’s draft findings relate to restructuring work performed over a decade ago. We will consider those findings and our options for a possible appeal at the appropriate time.

“We disagree with a number of the arguments being advanced by Executive Counsel at the sanctions hearing.”

The spokesperson added that as the Tribunal is ongoing, KPMG will not be making any further comment at this stage.

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