KPMG has admitted misconduct on its reporting of up to £1 trillion of client assets held by BNY Mellon.
The allegations follow a Financial Reporting Council (FRC) investigation, initiated by a referral from the Financial Conduct Authority (FCA) into compliance work completed by the partnership in 2011.
Both KPMG and London-based financial service audit partner Richard Hinton will be referred to the FRC's disciplinary body. No client is believed to have lost money as a result of the misconduct.
The client assets in question were worth over £1 trillion at their peak.
The FRC said both Hinton and KPMG had fallen ‘significantly short’ of the standards of the Institute of Chartered Accountants in England and Wales.
The firm had ‘failed to give adequate consideration’ to whether records of client assets held by BNY Mellon’s international and London branches were compliant.
In turn, this meant KPMG auditing was insufficient to support the opinions to set out in a 2011 client assets report to the FCA.
A spokesperson for KPMG said: 'In 2011, the FRC issued new guidance applicable to client assets reports. We accept and regret that our work did not fully reflect all aspects of this new guidance.
'Since that time, there has been further fundamental change in the regulatory environment and we have significantly enhanced our [client asset] procedures and training to reflect this.'
KPMG has been caught up in a number of scandals in the last year, as perceptions of the independence of the profession has taken a beating.
MPs accused the firm in May of being ‘complicit’ in the accountancy practices of government contractor Carillion, which KPMG audited for 19 years prior to its collapse in January.
In June, the FRC found that 50% of the firm’s audits of FTSE 350 companies needed ‘more than limited improvements’.