LONDON - Accounting giant KPMG has been fined and reprimanded by regulators over a defective audit of Britain's Co-op Bank and its audits of lenders will face additional checks for three years.
Britain's Financial Reporting Council said KPMG had been fined 5 million pounds ($6.5 million), reduced for a settlement to 4 million pounds.
KPMG audit partner Andrew Walker was also fined 125,000 pounds, discounted for settlement to 100,000 pounds, and reprimanded.
The penalties relate to a 2009 audit of the Co-op Bank shortly after its ill-fated merger with the Britannia Building Society, which pushed it to the brink of collapse.
The penalties come at a difficult time for Britain's big four accountancy firms - which also include PwC, Deloitte and EY - with regulators calling on their audit functions to be ringfenced from consultancy after a string of auditing failures on major firms including BHS and Carillion.
All KPMG's audit engagements with credit institutions for audits ending in 2019, 2020 and 2021 will be subject to an additional review by a separate KPMG audit quality team who will provide reports to the FRC, the regulator said.
KPMG will also pay 500,000 pounds towards the FRC's costs.
The FRC said KPMG and Walker both admitted their conduct fell significantly short of standards expected in assessing the fair value of Britannia's loan book.
The accountancy firm failed to obtain sufficient evidence and to exercise sufficient professional scepticism and failed to inform Co-op Bank the financial statements were not adequate.
A spokesperson for KPMG said: "We regret that some of our audit work around specific elements of the Bank's Fair Value Adjustments did not meet the appropriate standards
"The work in question was conducted almost a decade ago and we have significantly enhanced our procedures and training around the areas in question since then."
After further years of tough trading Co-op Bank was rescued by a consortium of US hedge funds in 2017.
The lender separately reported first quarter results this morning, with a pre-tax loss of 28.6 million pounds for the first three months of 2019. ($1 = 0.7649 pounds)