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ICAEW explains board decision on Silentnight fine money

Author: ICAEW Insights

Published: 09 Feb 2022

The Accountancy Scheme is designed to fund investigations, Institute says, not to provide a compensation fund.

Last year the FRC Tribunal levied sanctions against KPMG and one of its former partners. The partner was excluded from ICAEW membership, while KPMG was fined £13m, severely reprimanded and ordered to appoint an independent reviewer. The Tribunal did note that the Silentnight pension fund had a significant deficit even before KPMG’s involvement.

The Silentnight case had been brought by the FRC under an arrangement known as the Accountancy Scheme, rather than the insolvency framework. The rules of this scheme – which was established in 2004 and further developed by the Companies Act 2006 – require the participating professional bodies (in this case ICAEW) to fund, up front, the costs incurred by the FRC in an investigation of any of their members or member firms. In return, whatever fines are levied by the FRC Tribunal (when and if an investigation results in a financial sanction) are passed to the professional bodies.

The Accountancy Scheme was therefore designed to fund investigations by the independent regulator without recourse to the taxpayer: it was never intended to operate as a mechanism for claiming or awarding compensation. The government is currently consulting on reforming insolvency regulation and, as the largest insolvency regulator in the UK, ICAEW has long argued that change is overdue. 

In July, a legal firm acting on behalf of the trustees of the Silentnight pension fund wrote to the ICAEW board asking for the fine money to go to the fund, presumably as an ex-gratia payment since there was no legal basis for the request.

The board had great sympathy with the way in which members of the pension scheme may have been adversely affected by administration of Silentnight in 2011, however it noted that the Accountancy Scheme was never intended to provide compensation for third parties who may have suffered losses as a result of the actions of ICAEW members and member firms. Not only was the tribunal not equipped, in terms of the expertise and experience of its members, to work through all of the technical legal arguments that would surround any claim for compensation such as causation, contributory negligence or quantification, but there was also the risk of complicating and potentially duplicating the civil rights of third parties to seek redress through the courts directly from the member or member firm alleged to have caused the loss.

The Accountancy Scheme is not unusual in this respect, and the FRC’s Audit Enforcement Procedure is one example of regulation that operates in a similar way. It is not set up to compensate those who suffer financially through a poor audit and all of the fines handed down under the Audit Enforcement Procedure will be remitted to HM Treasury.

Taking all of this into account, the board concluded that it would not be appropriate for ICAEW to pass over any fines received from the FRC in relation to this matter to the pension fund. At the further request of the law firm, the ICAEW Board considered this matter again at its meeting in October, and reaffirmed its previous decision. 

An ICAEW spokesperson said: “This fine money is not a windfall for ICAEW. While a substantial penalty was ordered to be paid by KPMG in relation to Silentnight, many other investigations since 2004 have not resulted in disciplinary proceedings against firms. In those cases, ICAEW and the other bodies have borne all of the costs. Even where fines have been imposed, many of the costs orders have not fully reimbursed the bodies for the whole costs of the investigations.”

“ICAEW is a professional body serving the public interest, as required by the terms of its Royal Charter. Money from FRC fines comes into our reserves where it is used to fund strategic projects that address public interest matters and support the development of the wider profession. In recent years this has included social mobility programmes such as BASE and RISE, and our international capacity building programme.”

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