ICAEW defends retaining KPMG Silentnight fineby
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.
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.