U.K. regulator fines KPMG $7.8M over audits of car insurer
The United Kingdom’s Financial Reporting Council has fined KPMG’s U.K. firm 6 million pounds ($7.82 million) for its 2008 and 2009 audits of Equity Syndicate Management Ltd., a car insurance company affiliated with Lloyd’s of London. The U.K. regulator also fined a current partner and a former partner at KPMG 100,000 pounds each.
The FRC also said it has “severely reprimanded” the Big Four firm and the two partners, and KPMG has agreed to go through an additional internal review and report back to the council on certain aspects of its 2018 audits of the insurer. An independent tribunal at the FRC made findings of misconduct after a hearing in December 2017 and the sanctions were imposed Tuesday following a hearing last October.
Fines and sanctions were also levied against a former director at Equity Syndicate.
The fines and sanctions come in response to investigations into the preparation and audit of Lloyd’s Syndicate 218 (Equity Red Star) report and accounts and the provision of actuarial advice to Equity Syndicate Management. The FRC found misconduct in the 2008 and 2009 audits of the financial statements of Syndicate 218 because KPMG made insufficient inquiries into the claims file review process and didn’t follow up on warning signs of deterioration in the syndicate’s claims reserves, so there was insufficient evidence to provide an unqualified audit opinion.
One of the accountants at Equity Syndicate directed claims reserves held by the syndicate to be reduced to meet a predetermined target. The FRC tribunal found the reviews were “wholly improper” and that the accountant failed to ensure that proper records were made, or that the reviews were properly disclosed to the board, the syndicate's external actuary or the auditors.
KPMG’s U.K. firm said it has made changes. “We are disappointed that aspects of our 2008 and 2009 audits were found not to have met the standards set by our regulator,” it said a statement forwarded by a spokesperson. “Since this work was conducted we have changed our insurance audit approach considerably, including how we work with actuaries when auditing insurance claims reserves. The tribunal accepted that KPMG has taken, and continues to take, steps to improve audit performance, and in its last inspection report, the FRC acknowledged our work in this area as an example of good practice. We will continue to work hard to put historical matters such as this to rest as quickly as possible.”