KPMG fined by UK regulator over Lloyd’s Syndicate 218 (Equity Red Star) audit

The Financial Reporting Council (FRC) has fined KPMG and some of its partners after an investigation found misconduct in relation to the audit of Lloyd’s Syndicate 2018 (Equity Red Star) and actuarial advice given to Equity Syndicate Management (ESML).

KPMG has been fined £6 million, "severely reprimanded" and has been told to undertake an additional internal review and report to the FRC on certain aspects of its 2018 audits of insurance undertakings (to which Solvency II applies and Lloyd's Syndicates).

Meanwhile, its partner Mark Taylor and former partner Anthony Hulse, have both received severe reprimands and fined £100,000 each. Taylor agreed to the imposition of a requirement to have a second partner review of his audits until the end of 2020.

Douglas Morgan, a former director of ESML, has been excluded from membership of the Chartered Institute of Management Accountants (CIMA) for two years.

The fines follow FRC's investigations on the auditing of Lloyd’s Syndicate 218 ( Equity Red Star) for accounts dating back to 2007, 2008 and 2009 and the provision of actuarial advice to ESML.

Taylor was an associate partner responsible for the audit of Syndicate 218, while Hulse was the audit engagement partner for the ultimate UK parent undertaking of the corporate member of the Syndicate.

A formal complaint had been filed in August 2016 following the conclusion of the FRC’s investigations, according to the statement. An independent Tribunal made findings of misconduct following a hearing in December 2017 and sanctions were determined following a hearing in October 2018.

The Tribunal found that in both years (2008 and 2009) "insufficient enquiries were made regarding the claims file review process and warning signs of deterioration in the Syndicate’s claims reserves were not acted upon, and consequently there was insufficient evidence to provide an unqualified audit opinion".

"The reviews were wholly improper,” the tribunal said.

The tribunal also found that Morgan had failed to ensure that proper records were made or that the reviews were properly disclosed to the Board, the Syndicate's external Actuary or the auditors.

The FRC’s investigation into Syndicate 218 also considered the conduct of the Syndicate's external Actuary. He admitted misconduct and received a severe reprimand and a fine in August 2017.

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