FRC findings on Silentnight -One of the largest fines ever issued.

The FRC have today on Silentnight issued one of its largest fines ever awarded. A large proportion of the evidence in this matter derived from work undetaken by the Burges Salmon team here on behalf of the trustees of the pension scheme including submissions, witness evidence and expert reports.

The Financial Reporting Council (“FRC”) today announced sanctions against KPMG LLP (KPMG) and David Costley-Wood, formerly a partner and Head of KPMG Manchester Restructuring. This follows a referral from The Pensions Regulator and an investigation undertaken pursuant to the Accountancy Scheme* in relation to Mr Costley-Wood’s conduct in respect of the Silentnight group of companies in the period August 2010 to April 2011.  An independent Disciplinary Tribunal made findings of Misconduct following a four-week hearing during November and December 2020 and sanctions were determined following a hearing in June 2021.

Sanctions

KPMG has been:

• fined £13 million,
• severely reprimanded and
• ordered to appoint an independent reviewer to:

1. conduct a Root Cause Review to establish:
   1. why threats to compliance with the fundamental principle of objectivity were not appropriately identified and safeguarded in the period prior to the appointment of office holders in the Silentnight matter; and
   2. in a sample of past cases, whether threats to compliance with the fundamental principle of objectivity were appropriately identified and safeguarded in the period prior to the appointment of office holders and if not, the reasons for such failures; and
2. conduct a review of various policies, procedures and training programmes relating to various of KPMG’s advisory services practices in the light of the results of the Root Cause Review.

Mr Costley-Wood has been:

• fined £500,000,
• severely reprimanded, 
• excluded from membership of the ICAEW for 13 years and
• precluded from holding an insolvency licence for the same period.

Findings of Misconduct

The Tribunal made findings of Misconduct in respect of breaches of the fundamental principles of Objectivity and Integrity.

It held that KPMG failed to act solely in its client’s interests, acted in fundamental respects contrary to those interests and in those of a party whose interests were diametrically opposed to those of Silentnight. It concluded that the lack of objectivity in this matter went to the core of the relationship between Silentnight and KPMG.

The Tribunal also held that, in addition to the lack of objectivity in relation to his dealings with Silentnight, Mr Costley-Wood acted dishonestly and therefore he and KPMG acted with a lack of integrity including in their dealings with the Pension Protection Fund (“PPF”) and the Pensions Regulator (“tPR”) despite Mr Costley-Wood acknowledging that there was an obligation to act transparently in relation to a regulator 

The FRC Tribunal commented: Breaches of the principles of integrity and objectivity risk seriously undermining public confidence in the standard of conduct of Members and Member Firms and in the profession generally, all the more so where, as here, the professional has acted dishonestly. Dishonesty is inimical to everything that a profession stands for and especially destructive of public confidence’.

https://www.frc.org.uk/news/august-2021-(1)/sanctions-against-kpmg-and-former-partner-in-relat