KPMG fined £13m for role in Silentnight sale

The Financial Reporting Council (FRC) has levied a £13m fine and further sanctions against KPMG following a referral from The Pensions Regulator (TPR).

As reported by our sister title, Pensions Age, these sanctions were the result of a disciplinary tribunal, which found that KPMG and its former partner and head of Manchester restructuring, David Costley-Wood, acted with a "lack of integrity" in their dealings with the Pension Protection Fund (PPF) and TPR in an attempt to assist private equity company HIG’s acquisition of bed retailer Silentnight between August 2010 and January 2011.

Additionally, Costley-Wood was determined to have assisted with a strategy designed to drive Silentnight into an insolvency process, or to the brink of such a process, with a view to passing the company’s pension scheme to the PPF at the expense of scheme members and PPF levy payers.

This was done to help HIG acquire the business without having to deal with the burden of pension liabilities.

FRC said KMPG and Costley-Wood had failed “to consider the self-interest and familiarity threats which arose from their relationship with HIG and from their desire to nurture that party as a client and keep them ‘onside’”.

It added: “Costley-Wood dishonestly advanced and associated himself with untrue and misleading and/or materially incomplete statements to the PPF, TPR, Silentnight and the trustees of the Silentnight Pension Scheme as to the causes of Silentnight’s difficulties in order to assist HIG in its efforts to enable Silentnight to shed its liability under the pension scheme as cheaply as possible.”

As a result, KPMG has been hit with a £13m fine and ordered to appoint an independent reviewer to establish why threats objectivity were not appropriately identified and safeguarded in the period prior to the appointment of office holders in the Silentnight matter, and whether threats were appropriately identified and safeguarded in a sample of previous cases.

The independent reviewer will also conduct a review of various policies, procedures and training programmes relating to various of KPMG’s advisory services practices.

Meanwhile, FRC also announced that Costley-Wood has been fined £50,000, excluded from membership of the Institute of Chartered Accountants in England and Wales (ICAEW) for 13 years, and precluded from holding an insolvency licence for the same period.

Additionally, KPMG has been ordered to pay almost £2.5m towards executive counsel’s costs and the costs of the tribunal, amounting to a further £305,814.

FRC executive counsel, Elizabeth Barrett, commented: “The scale and range of the sanctions imposed by the Tribunal mark the gravity of the misconduct in this matter. The decision serves as an important reminder of the need for all Members of the profession to act with Integrity and Objectivity and of the serious consequences when they fail to do so.”

A KPMG spokesperson said: “We acknowledge the tribunal’s findings and regret that the professional standards we expect of our partners and colleagues were not met in this case. Mr David Costley-Wood has retired from the firm and whilst we no longer provide insolvency services, our broader controls and processes have evolved significantly since this work was performed over a decade ago.

“As a firm, we are committed to the highest standards and continually invest in our people and procedures to ensure potential conflicts of interest are identified and managed effectively. We welcome the additional review process outlined by the FRC and remain focused on building trust and delivering work of the highest quality.”

Commenting on the announcement, a TPR spokesperson added: “We are aware of the findings of the FRC disciplinary tribunal following our report to them of our concerns and the provision of evidence. We are pleased with the tribunal’s decision and agree with its comments about the conduct of KPMG and Mr Costley-Wood.

“If we see advisers acting in a manner that is unacceptable to us, we will refer matters to other appropriate regulatory bodies and assist them with their investigations, as well as consider the availability of our own powers.

“Today’s announcement highlights the important role the audit, accountancy and actuary industry plays helping to safeguarding pension savers’ interests.”

A PPF spokesperson said: “The FRC tribunal findings make clear the significant detriment caused to the Silentnight pension scheme, which is currently in PPF assessment.

"We believe it’s only right that the proceeds of the fines imposed by the FRC should benefit the Silentnight pension scheme so it can achieve the best possible outcome for its 1,200 members.”

The PPF explained that the fine was set to go to ICAEW, but called for the proceeds to go to the scheme "given the significant detriment caused".

    Share Story:

Recent Stories

Podcast: The benefits of private equity in pension fund portfolios
The outbreak of the Covid-19 pandemic, in which stock markets have seen increased volatility, combined with global low interest rates has led to alternative asset classes rising in popularity. Private equity is one of the top runners in this category, and for good reason.

In this podcast, Munich Private Equity Partners Managing Director, Christopher Bär, chats to European Pensions Editor, Natalie Tuck, about the benefits private equity investments can bring to pension fund portfolios and the best approach to take.

Podcast - The power of three: Using Common Contractual Funds to improve tax outcomes for investors
Large asset owners are still investing in equities in a way where they are taxed on their income. The implication is that they get a poorer return. They need to, and can, improve this, but how?

In this podcast, AMX Head of Client and Manager Development, Aaron Overy, and AMX Product Tax Specialist, Kevin Duggan, discuss with European Pensions Editor, Natalie Tuck, about three options to help ensure good withholding tax outcomes for institutional investors.
Mitigating risk
BNP Paribas Asset Management’s head of pension solutions, Julien Halfon, discusses equity hedging with Laura Blows

Europe’s pensions challenges
Francesca Fabrizi meets Matti Leppälä, Secretary General and CEO of PensionsEurope, to discuss the key aims and objectives of the association today.