UK’s FRC Triples Fines Against Big Four Accountants

The U.K.’s Big Four corporate accountancy and auditing firms — Deloitte, PwC, KPMG and EY — saw nearly three times as many fines last year as they did in 2017, according to the Financial Times.

The publication reported Wednesday (July 31) that the Big Four were hit with a combined $52.3 million in fines in 2018, issued by the Financial Reporting Council, compared with $18.86 million levied against the firms in 2017 (those 2018 and 2017 figures are reduced to $38.9 million and $15.8 million, respectively, once accounting for settlement discounts).

The surge in fines come amid rising calls to boost competition in the sector and improve audit quality following several high-profile corporate collapses in the U.K. The government is gearing up to replace the Financial Reporting Council with the Audit, Reporting and Governance Authority, which will reportedly have greater powers than those of the FRC.

The number of fines levied by the FRC also rose from 11 to 27 between 2017 and 2018, reports said, while more investigations and closed cases were notched last year, too.

“The purpose of the sanctions is to deter bad behavior and send a message to the market,” said Elizabeth Barrett, FRC director of enforcement, in an interview with the Financial Times. “A large fine that has both a monetary and reputational impact is important.”

Last year also saw the FRC’s largest-ever fine levied against an auditor, with a $12.17 million penalty (later reduced to $7.91 million) issued against PwC after the watchdog uncovered misconduct in its audit of department store chain BHS.

But while the industry’s Big Four has faced increased pressure — including calls by some policymakers for a forced breakup — similar scrutiny has been placed on the FRC itself. The release of these figures is part of the watchdog’s efforts to heighten transparency into its investigations and enforcement activity, reports said, and were published as part of its first annual enforcement review.

Legal & General Chairman John Kingman led a government probe into the FRC’s effectiveness last year and concluded that the regulator has “limited transparency.”