KPMG has been fined £5m and “severely reprimanded” after admitting misconduct in its 2009 audit of Co-operative Bank.
The Financial Reporting Council (FRC) said KPMG’s bad auditing came in the wake of Co-operative Bank’s merger with building society Britannia.
It said the firm’s deficiencies included “failures to exercise sufficient professional scepticism”.
KPMG said it regretted that some of its audit work “did not meet the appropriate standards”.
The accountancy giant had also failed to tell Co-op Bank that a number of loans it acquired through the Britannia merger were riskier than thought and failed “to obtain sufficient appropriate audit evidence”, the FRC said.
KPMG will pay £4m after agreeing to a settlement. Audit partner Andrew Walker was also fined, and will pay £100,000. The accountancy firm will also pay the regulator’s costs of £500,000.
The fine is the latest in a series for KPMG, which is one of the “big four”, the four largest auditors in the UK which as well as KPMG, include PwC, EY and Deloitte.
Last month, it was fined £6m, received another severe reprimand and told to undertake an internal review over the way it audited insurance company Syndicate 218 in 2008 and 2009.
The FRC is also investigating the accountancy giant’s audit of the government contractor Carillion, which collapsed under £1bn of debt last year.
In June 2018, the FRC also found an “unacceptable deterioration” in KPMG’s work and said it would be subject to closer supervision.
Co-op Bank problems
After merging with Britannia, things went downhill for Co-op bank. In 2013, the bank entered a bid for 632 branches being sold by Lloyds Bank.
The deal collapsed after the discovery of a £1.5bn black hole in the Co-op Bank’s balance sheet.
The Co-op Bank was subsequently taken over by a group of US hedge funds in a rescue deal in 2013.
In 2017, the bank required another, £700m rescue package from investors to stop it from collapsing.
The bank – which no longer has any association with its former parent the Co-op Group – now has about 68 branches, down from 164 in 2015. In common with its larger competitors, setting aside money for customers wrongly sold PPI loan insurance has hit its performance.