Big Four vs Watchdog: Giants rack up over £154m in fines
Rarely does a week pass without a Big Four firm finding itself in the headlines for another regulatory fine. The data backs up this feeling.
In figures seen by Morning Wire, the Financial Reporting Council (FRC) has fined the Big Four giants over £154m, pre-discount, over the last five years.
The majority of fines the FRC issues come with a discount, usually because the firm either admitted its mistakes or reported itself to the regulator.
Despite being the smallest of the Big Four, KPMG is leading in total financial sanctions over that period, with 11 fines. The firm was hit with over £81.8m, pre-discount, in monetary sanctions.
A large chunk of KPMG’s total will include the record fine FRC slapped on it over its auditing of collapsed construction giant Carillion, which went under with almost £7bn of debt.
The regulator in 2023 deemed KPMG’s failures to be “exceptional” after it failed to adopt a “rigorous and robust approach.” After cooperating with the investigation, the auditor was fined over £26m, reduced to £18.5m.
The firm was fined over £2m last March, reduced to £1.4m, over its auditing of advertising agency M&C Saatchi.
KPMG resigned as the ad giant’s auditor in 2019 amid an accounting scandal. The company had to set aside £6.4m after it spotted an error in its accounts.
Next on the list is PwC, with eight fines totalling over £34.7m, pre-discount.
PwC was one of three firms, along with EY and Oliver Clive & Co, to be handed a nearly £5m penalty for the collapse of London Capital & Finance (LCF).
The firm was also fined £15m by the Financial Conduct Authority (FCA) over its audit of LCF.
LCF was a minibonds firm that took money from almost 12,000 investors before it collapsed in 2019 and was subject to high-profile civil litigation.
The firm and KPMG were also fined £3.5m in 2023 for auditing logistics and haulage company Eddie Stobart Logistics, which came close to collapse in 2019.
Deloitte was slapped with £19.6m in damages over that period.
One notable example is a £1.25m fine relating to listed construction company SIG plc, which was reduced to £900,000.
Meanwhile, by total financial amount, EY faced the lowest fines, with a bill of over £18m (discounted to £12.3m) over the last five years.
The watchdog slapped EY with a £6.5m (discounted to over £4.8m) penalty last week for auditing the collapsed airline Thomas Cook.
Earlier this week, it was sanctioned £500,000 over its audit of a Scottish water company owned by French utilities company Veolia.
Ritwick Ghosh, Counsel at law firm Signature Litigation, told Morning Wire, “Although the FRC’s view is that the largest firms have now improved audit quality following years of high-profile enforcement cases, it has warned firms not to ‘rest on their laurels’.”
“The impact of enforcement is often felt beyond FRC sanctions in litigation or arbitration claims and firms will remain concerned about their exposure,” he added.
The large amount of fines piling up on the Big Four firms comes as Morning Wire understands that some lawyers have advised insurance clients not to pay out for those trying to push their fines through their professional indemnity policies.
This comes as the Big Four giants struggle with a looming profitability problem.
The long-awaited plan to reform the FRC into a new regulator, the Audit, Reporting, and Governance Authority (ARGA), was unshelved last July.
The Bill was re-introduced in the last King’s Speech after the previous Tory government shelved it to focus on “growth and the UK’s competitiveness.”
The push for a new watchdog was due to the many high-profile scandals over the last number of years, to focus on audit and reporting failures.
The Big Four firms were contacted for a comment.