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ICAEW defends retaining KPMG Silentnight fine

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Silentnight pension holders stand to lose around 30% of their pot as a result of KMPG’s misconduct, but ICAEW insists the fine levied on the Big Four firm will not be used to compensate them.

10th Feb 2022
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ICAEW has defended its decision not to donate £13.5m it received in fines from the Silentnight insolvency to the bankrupt firm’s pension fund following a barrage of criticism.

Political and media pressure to compensate the bed company’s pension holders with the award from the Financial Reporting Council (FRC) prompted the Institute to respond that it had not been gifted a “windfall” and that the costs of its investigations are rarely reclaimed.

KPMG was sanctioned in August 2021 over its conduct in the sale of Silentnight, which became insolvent, as the Silentnight Pension Scheme ended up in the Pension Protection Fund.

David Costley-Wood, former partner and head of KPMG Manchester Restructuring, was severely reprimanded and penalised £500,000 for his role in the sale and excluded from the ICAEW for 13 years.

The ICAEW board had voted to retain the proceeds of the fine, as it was legally entitled to, rather than reimburse Silentnight’s pension fund. In response, the All Party Parliamentary Group on Fair Business Banking criticised the decision, stating that Silentnight’s staff had been “ripped off by one of the body’s own members”.

Writing to APPG Banking co-chairman Kevin Hollinrake MP, ICAEW chief executive Michael Izza said that, although the board “had sympathy” with members of the Silentnight Pension Scheme who may have suffered losses, it would not be passing on the £13.5m as compensation.

While the ICAEW board considered the merits of the request, it said the Accountancy Scheme, which details how cases are dealt with by the FRC, “was never intended to operate as a compensation scheme for third parties who may have suffered losses as a result of actions of ICAEW members and member firms.” Critics say the Accountancy Scheme is opaque, with little clarity on how fine money is distributed.

‘Embarrassing’ for accountants

Grumblings continued, however, and further condemnation of the decision was made in parliament by Lord Lee of Trafford, the former MP for Pendle, Lancashire, where many Silentnight workers reside. Lord Lee tabled a question requesting ministers to investigate why the ICAEW pocketed £13.5m of fines.

He queried “the decision of the ICAEW to retain the fines money levied on KPMG and one of its partners by the FRC rather than paying it to the Silentnight pension fund scheme, which lost out as a result of KPMG’s actions”.

More than 1,200 pension fund members are set to lose almost a third of their promised pensions due to the actions of KPMG, prompting the trustees of the scheme to approach the ICAEW to appeal for some form of compensation.

“The bulk of the money should surely go to the pensioners,” Lord Lee, who is an ICAEW member, told The Times newspaper. “I would think many accountants like myself would be embarrassed over this.”

A stinging column following up the saga accused the ICAEW of profiting from the misconduct of member firms.

“So the trade body responsible for setting and policing standards of integrity in the profession profits from the most egregious of bad behaviour,” said financial editor Patrick Hosking. “And the more dishonesty and fraud discovered in the profession, the more profit the institute stands to make.”

No legal basis for request

On Wednesday, the ICAEW responded to the claims in full, repeating its stance that the Accountancy Scheme - which is being wound down - is designed to fund investigations, not to provide a compensation fund.

The rules of this scheme, established in 2004 and further developed by the Companies Act 2006, require the participating professional bodies (in this case ICAEW) to fund, up front, all costs incurred by the FRC in an investigation of any of their members or member firms. In return, whatever fines are levied by the FRC Tribunal, when and if an investigation results in a financial sanction, are passed to the professional bodies.

The government is currently consulting on reforming insolvency regulation and, as the largest insolvency regulator in the UK, ICAEW has long argued that change is overdue.

It said a law firm acting on behalf of the trustees of the Silentnight pension fund wrote to the ICAEW board in July asking for the fine money to go to the fund, “presumably as an ex-gratia payment since there was no legal basis for the request”.

ICAEW said the tribunal was not equipped, in terms of the expertise and experience of its members, to work through all of the technical legal arguments regarding compensation claims. It also said there was a risk of complicating and potentially duplicating the civil rights of third parties to seek redress directly from the member or member firm alleged to have caused the loss.

Three times the matter went before senior ICAEW figures who reaffirmed the previous decision.

“This fine money is not a windfall for ICAEW,” an ICAEW spokesman said. “While a substantial penalty was ordered to be paid by KPMG in relation to Silentnight, many other investigations since 2004 have not resulted in disciplinary proceedings against firms. In those cases, ICAEW and the other bodies have borne all of the costs. Even where fines have been imposed, many of the costs orders have not fully reimbursed the bodies for the whole costs of the investigations.”

The Institute said money from FRC fines is used to fund strategic projects that address public interest matters and support the development of the wider profession.

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Replies (21)

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By Paul Crowley
10th Feb 2022 19:06

A fine is a fine
Not a redistribution of wealth
How else could ICAEW maintain its standard of living

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By Hugo Fair
10th Feb 2022 20:22

Its the opacity of how the ICAEW utilises its funds (including those derived from fines) that leaves them looking shifty.

".. where fines have been imposed, many of the costs orders have not fully reimbursed .. the whole costs of the investigations” = understood if unquantified.
".. money from FRC fines is used to fund strategic projects that address public interest matters and support the development of the wider profession" = woolly obfuscation.

OK, they need funds to perform the investigations (whether these are as often or in-depth as they should be is a different matter) ... but without clarity in their expenditure, one is left with a sense that a lot of 'good times' are swept into the box labelled 'public interest matters'.

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Replying to Hugo Fair:
Richard Sergeant
By Richard Sergeant
11th Feb 2022 10:49

You can fund a fair bit of 'public interest matters' with £13.5 million from this one alone. Pass me the port...hic

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By miike
11th Feb 2022 09:57

Finding this kind of pseudo-criminal movement of funds hilarious, I try and look to the positive.

If it wasn't for self appointed NGOs and charities, the ordinary person may not be able to afford the latest design Range Rover for instance. Be thankful of them taking the hit on depreciation and powering the second hand car market.

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Bee
By May bee
11th Feb 2022 09:59

I'm an a ACCA member rather than ICAEW so would not directly lose out from the great work the institute would not be able to do without the money (hmmm) but in this case I'd want the money to go to the normal people affected rather than the coffers. Professional bodies instruct us all about being moral and ethical in our dealings... this comes down to doing the right thing, not the legally required thing, the right thing. If it were not private individuals affected I wouldn't feel quite the same but in this case it is clear they need it more than ICAEW.

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By Prem Sikka
11th Feb 2022 10:03

The ICAEW has recovered the costs in full and made a profit. It preaches ethics to others but is found wanting a again and again. The ICAEW's regulatory powers in every sphere need to end.
The regulation of insolvency is one of the biggest scams. At October 2020, some 7,962 business insolvencies had been running for the period of 5-9 years and were incomplete, the numbers running for 10-14 years and not completed were 3,642. 14,328 were running for more than 15 years, enabling IPs to milk them for exorbitant fees. There are no inquiries into delays or excessive fees. The long-suffering public can’t even demand information as the RPBs are excluded from the freedom of information law.
In the last 10 years, some 8,000 complaints about excesses of insolvency practitioners have been lodged with RPBs. Only five insolvency practitioners have had their licenses revoked. Self-regulation is a scam.

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By GDavidson
11th Feb 2022 10:09

These are dark times for accountants especially auditors. A friend asked me the other day how accountant sleep at nights. I didn't have a ready answer.

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Replying to GDavidson:
ALISK
By atleastisoundknowledgable...
11th Feb 2022 18:10

GDavidson wrote:

These are dark times for accountants especially auditors. A friend asked me the other day how accountant sleep at nights. I didn't have a ready answer.

On a SilentNight mattress??

Too soon?

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By Nebs
11th Feb 2022 10:10

Would it now be possible for the pension scheme to sue KPMG?

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By Arcadia
11th Feb 2022 10:51

The correct question to ask is why, after 8 years the Silent Night trustees have not commenced and completed action against KPMG if they have a legitimate cause to do so?

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Replying to Arcadia:
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By Paul Crowley
11th Feb 2022 16:53

Directors can be bad as well
The pension trustees have had years to sort this out and make valid claims

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By bobsto12
11th Feb 2022 11:28

Absolutely tone deaf response. They have probably profited from the misdeeds of their members. Given the constant stream of negative press about poor quality audits here was a chance to be the good guys and create some much needed public goodwill.

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By moneymanager
11th Feb 2022 13:29

"prompted the Institute to respond that it had not been gifted a “windfall” and that the costs of its investigations are rarely reclaimed."

Increase the fine to properly cover costs, increase it again to PENALISE the partners for their actions and repair the damage their actions facilitated, otherwise this is the police excusing the housebreaker not for house breaking but only for getting caught and causing the police to spend time and money investigating the crime

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By Tom Hartopp
11th Feb 2022 13:44

Surely there is some form of redress available that might see KPMG pursued for the loss of benefits owed to the pension fund members? I recognise I may be showing a degree of ignorance regarding regulations/law in these circumstances (i.e. Pension Protection Fund involvement). The apparently guilty party KPMG needs holding to account.

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Slim
By Slim
11th Feb 2022 13:44

we need an uprising

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By David Gordon FCCA
11th Feb 2022 13:48

The problem is the rules are all wrong.
The ICAEW is within its legal rights.
But
The FRC has the power to order KPMG to reimburse the victim, rather than just levy a "Fine"
Second
It is the Persons in Substantial Control of the offender who should be directly penalised.
The fine is, if my arithmetic is correct, approximately,.0004 of KPMG's global income.
(US$32.13 billion)
That's US$0.40 per US$1000.fees
Just charge the clients for an extra cup of water.
It is a joke.
As in any court hearing, the guilty (Subject to mitigating circumstances) should be required to pay claimant's costs over and above any damages or restitution ordered.
The FRC should in law be obliged to take victim Restitution into account.
As should the ICAEW
flying pink pigs comes to mind.

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By rememberscarborough
11th Feb 2022 14:52

No wonder Joe Public would prefer to employ non-qualified accountants rather than pay the exorbitant rates qualified firms charge especially when they behave like this. The accountancy profession used to be respected but has long since gone and been replaced with suspicion and contempt. The governing bodies seem quite happy for this to continue as long as they rake in "fees" like this.

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By Arcadia
11th Feb 2022 17:41

If there is to be some restitution to be made to the pension trustees, then it is KPMG who should do so, not the Institute. The ICAEW is not a profit making body, and without the income from fines, then ICAEW members who would suffer the cost of regulation with no ability to place the cost on those of their members who have broken the rules. If the law of the land cannot hold KPMG to account for this, then it is not the Institute's fault. Prem Sikka thinks self regulation is a scam, but why was this put in place at all? The great and the good, of which he was one, should have devised a better system. However, if say the FCA, or the Bank of England or whoever, were the regulator, would it make any difference? They would still have to collect the fines to pay for the regulation.

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By AndrewV12
14th Feb 2022 11:27

I know the law is an [***] and the small guy stands no chance up against multi nationals, but why don't the pensioners sue KPMG.

( I may have answered my own question there).

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By David Gordon FCCA
15th Feb 2022 13:17

In reply to comments
(been there, worn the T-shirt)
Yes the pensioners could sue.
But
1) You have to precisely define the person responsible for your loss
Pensioneer Trustees or KPMG?
[***] up an audit is not responsibility for a loss, it is responsibility for not detecting the loss, but that is a post-event happening.
2) You have to quantify your loss-exactly quantify.

There is no legal aid in these matters.
so, unless you have access to a six figure sum for fees, forget it.

The law is there, but except and unless you are a billionaire, forget it.

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By David Mitchell
16th Feb 2022 14:16

As an ICAEW member it did seem that we should not profit from this situation. However, since 2004 what costs have ICAEW funded, and what income via fines have they recouped. Are they profiteering or are they covering costs, or somewhere in between. Looking at one case on 18 years is in no way a good sample. As a member, I don't want to profit from pensioners, but I also don't want to fund bad behaviour of others. Simple solution. ICAEW should state the total amount funded, and the total amount recouped. Then everyone can be informed and opine accordingly.

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