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ICAEW reprimands former Northern Rock FD

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8th Sep 2011
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David Andrew Jones, who was finance director at Northern Rock when the bank collapsed in 2008, has been severely reprimanded and ordered to pay £3,620 costs by the ICAEW for committing acts likely to bring discredit on the accountancy profession.

Jones has already had to deal with more serious sanctions imposed by the FSA in 23 July 2010 when it imposed a £320,000 penalty and banned him from carrying out any regulated activity. The fine was reduced by 20% because Jones agreed to the FSA findings against him at an early stage.

The FSA decision notice found that he had colluded in financial and public statements that omitted some 1,917 arrangements from the bank’s impaired loans statement and acted recklessly by allowing the bank’s Operating and Business Review to show figures which he knew to be false.

At a disciplinary hearing on 14 June, the ICAEW’s investigation committee ruled that the FSA decision against him was conclusive evidence of a violation of the institute’s disciplinary bye-laws.

Details published this month in the institute’s disciplinary orders and regulatory decisions report summarise the FSA’s findings:

  • Northern Rock had a growing number of possession order cases that first came to Jones’s attention in January 2007, when he was financial director designate. The bank’s reporting policy was to exclude “pending possessions” where it had not gained physical possession from the company’s reported data on impaired loans.
  • Jones agreed with Northern Rock’s deputy CEO David Baker that the provisioning was correct in the 2006 accounts, so there was no obligation to amend the 2006 accounts. But he would have been aware that the company’s 2006 Operating and Business Review (OBR) was incomplete because it did not include details of the 1,917 pending possessions cases.
  • Having assumed the full FD role, Jones failed to resolve the backlog of possession cases and interim results for 2007 were still incorrect (even though the financial statements technically remained accurate). Although the issue had not been resolved in the agreed timescale, Jones took no further action to correct the information included in the interim accounts.
  • Management information he provided to the bank’s the Assets and Liabilities Committee (ALCO)
  • Excluded pending possessions data; the FSA concluded that he should have specifically brought the issue to the committee’s attention.
  • In a presentation to the market on 24 January 2007, Baker made misrepresentations about impaired loans, that Jones failed to contradict at the time, or afterwards.

As a senior director and FSA-authorised person, Jones had a duty to reveal the company’s true position said FSA enforcement director Margaret Cole in July 2010. “He had numerous opportunities to put things right, but failed to do so.”

When the full extent of the bank’s dodgy loan book came to light, the bank collapsed and was nationalised. Jones was kept on, but demoted from the board and appointed chief financial officer of the Northern Rock (Asset Management), the rump that was left with the toxic assets. He subsequently left the organisation to concentrate on defending himself against the FSA’s charges. Alongside Jones, former deputy CEO Baker was fined £504,000 and former Northern Rock credit manager Richard Barclay was fined £140,000+. Like Jones, both men were banned from holding positions in regulated businesses.

Before the ICAEW investigating committee, a legal representative for Jones argued that the FSA punishment had been disproportionatel. Jones himself addressed the tribunal and expressed regret for not putting right Baker’s misstatements. He added that if the arrears figures had been adjusted to include the pending possession data then, this would have misled the market.

The tribunal was also given a number of character references on his behalf.

The ICAEW tribunal noted that during his time as FD, Jones’s priority was to resolve more serious problems than the loan impairment reporting treatment, and he was instrumental in persuading the board to issue the profits warning that ultimately triggered its collapse.

The tribunal accepted that Northern Rock’s financial statements were correct, because the loans were fully provided for and Jones had not been responsible for the initial understatement of pre-possessions.

However,  the committee concluded, “Mr Jones was working at a very senior level in a leading financial institution. As such, his error of judgement was high profile and was likely therefore to have undermined the public’s confidence in the profession. In the circumstances, a severe reprimand waswarranted.”

Because of the scale of the FSA penalty, the ICAEW imposed no fine, but charged Jones with £3,620 in costs. At a little more than 1% of the FSA fine, the ICAEW judgement is more of a professional insult to the disgraced finance director than a serious punishment.

Further reading

Northern Rock - the story so far

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Replies (11)

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By Albert Camus
08th Sep 2011 16:41

I wish I had caused the collapse of the banking system...

...instead I wrote one badly wordly letter to a client who was complaining about his £100 SAR bill, dismissing his complaint as froth whilst I was clinically diagnosed as being insane and I was fined £30,000 and thrown out of the ICAEW.

I was then deigned the right of appeal against this decision because I had not made my appeal in the allotted time because I was sectioned under the mental health act during the 28 days the ICAEW gave to me.

By punishing me in this way and my deigning my right of appeal, the ICAEW allowed my business partners to take my £1,000,000 of equity away from me without any compensation and dismissed my complaint about the actions of these partners as "a commercial dispute" and not one they could become involved with.

The ICAEW then strung me along for 2 years " considering my case" insisting that I submit legal paper after legal paper - which cost £'000's to have prepaired - before telling me - when all possibility of appeal by way of Judicial Review of through the European Courts of Human Rights was expired - that my case would not be reconsidered.

Whats more, on 6 occasions I have contacted CCAB trying to get help and on six occasions I have been ignored and when I tried to go public and posted a video on Youtube about my situation I was threatened with more litigation from the glorious ICAEW until such time as I took down the posting.

So, you can see why I wish I had caused the collapse of the international banking system!, my punishment would have been trivial when compared with the crime of becoming ill.

 

Albert Camus

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By pembo
09th Sep 2011 11:36

unbelievable

In fact so much so that I just posted a post on it in frustration !

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By RichBatoul
09th Sep 2011 12:22

ICAEW Investigating Committee

Whilst not knowing the full facts of all cases there does appear to be a certain amount of leniency given by the ICAEW to the FD of Northern Rock compared to other reprimands/fines etc meted out.

Is this a case of double standards at the ICAEW?

 

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7om
By Tom 7000
09th Sep 2011 12:33

320k eh...was that a months wages?

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Replying to User deleted:
John Stokdyk, AccountingWEB head of insight
By John Stokdyk
09th Sep 2011 13:21

What the investigating committee said

On the point of the absence of any fine from the ICAEW, perhaps I should have quoted the committee's findings in full: "The tribunal took into account the large financial penalty imposed upon Mr Jones by the FSA and therefore imposed no fine."

After the FSA made its decision last July, Jones told the BBC, "I consider that the FSA's conclusions and imposed penalty are both unfair and disproportionate."

It's a stance he maintained at the investigation committee hearing, and it appears his argument carried some weight.

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By keithas
09th Sep 2011 13:28

Lazy journalism

"When the full extent of the bank’s dodgy loan book came to light, the bank collapsed and was nationalised".

The mythology continues and deepens: Northern Rock did not collapse because of bad debts; it was purely cash flow caused by inter-bank lending ceasing up - a factor that no-one in the world predicted.

I hear so much of the media stating that Northern Rock was involved in the Sub-Prime market; it was not!

Ironically, Northern Rock was sunk by a side effect of the dubious practices in which most of the other banks were involved. The other banks were bailed out - Northern Rock was not.

More specific to this story, the figures he concealed would have taken the mortgages in arrears up from .42% to .68% of the loan book. The Council of Mortgage Lenders average was .89%. Now that gives it a different perspective, does'nt it?

 

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By Frustrated Accountant
09th Sep 2011 14:47

Serious offences minor fines

I have to agree with RichBatoul. The ICAEW is great at imposing relatively major fines for minor alleged offences (with no actual "proof" just someone's say so) and yet someone earning this sort of money who did actually do something wrong (by his admission and the FSA's findings) gets what is for him a very small slap on the wrist. Quite clearly the ICAEW is run for a certain sort of Chartered Accountant by a certain sort of Chartered Accountant and those starting out in sole practice or with very minor offences are not really wanted at all.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
09th Sep 2011 15:48

A fair cop

@keithas - The "lazy journalism" bit hurt, but I've got to admit you've got a point.

The nature of the profession's disciplinary process is that the 3.5 years it took for the matter to be resolved by the ICAEW is relatively swift justice. It's common for cases like this to drag on for up to 10 years.

I always find the detailed disciplinary explanations to be quite illuminating about the pressures, mistatkes and transgressions that can afflict accountants, and think that there is merit in trying to retell the circumstances that gave rise to them.

I admit that I glossed over the actual causes and sequence of the Northern Rock collapse, but we haven't got time or space to write a chronicle of the global financial crisis. I am deeply sorry for falling short in this case, but can't do much about it.

But the AccountingWEB commnity might be able to help. If you are as well informed as you appear do be, perhaps you would write a short analysis, highlighting what accountants (within Northern Rock, auditors and reulatory bodies*) could have done to prevent or lessen the impact of the collapse.

Let me know by private message if you're interested.

*(the House of Lords economic affairs committee report into the audit profession has some interesting background on that - if you've got the spare time to read through it all).

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By RichBatoul
12th Sep 2011 08:58

Serious offences minor fines

In response to Frustrated Accountant, there does seem to be a very uneven playing field here for members of the ICAEW.

A review of the ICAEW code of Ethics includes the following statement:-

"ICAEW believes that integrity is fundamental to ethical behaviour"

Does anyone remember the Barlow Clowes affair of the 1980's and what became of the ICAEW members implicated in that financial situation?

Is this just another case of "jobs for the boys"?

 

 

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By Frustrated Accountant
12th Sep 2011 09:57

Too true

I totally agree RichBatoul. And it's not just me. The lack of evidence required (just someone's say so) for finding a member "guilty" is staggering. And it's also playing fast and loose with the law on defamation. Having discussed this with an ex-member of the Standards Committee it's not just those being accused of wrongdoing who think the Committee is out of touch with the world inhabited by large numbers of their members.

 

See http://www.accountancyage.com/aa/news/1764717/icaews-disciplinary-process-criticised

A member found guilty of child [***] offences was fined just £1,000 as was someone convicted of drink driving. If those offences are abohorrent to the vast majority of the membership and think it an exceedingly serious matter then I'd be very surprised.

This also shows how the head of DTE

"said the institute was hammering firms for ‘technical offences’ while allowing members guilty of serious crimes to retain membership and face small financial penalties."

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By Lisa_Mandy
15th Sep 2011 22:25

What was the point of that, ICAEW?

What a joke.  I bet he never even noticed it - and to be fair, why should he? 

What was the point of that - it's all a bit "too little too late".

 

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