Since the last update, the outcomes of four disciplinary tribunals and five settlement orders (four of them in relation to one linked case) have been published. In addition, seven consent orders made by the Investigation Committee and one fixed penalty were also published.
In one disciplinary tribunal, a member was ordered to be excluded, pay costs and a financial penalty of £3,000 because when dealing with their own tax affairs, that member had, over ten consecutive years, submitted to HMRC their self-assessment tax returns, which omitted the full amount of dividends received. This conduct was dishonest because they submitted the returns knowing they had not disclosed in the returns the full amount of dividends which they were required to do.
In another disciplinary tribunal, a member was ordered to be excluded and pay significant costs (there was no separate financial penalty). This was because they did not make adequate enquiries and/or ensure professional competence when they:
- advised their client that their firm would be eligible to claim Entrepreneurs’ Relief on the disposal of their business;
- prepared and filed with HMRC a self-assessment tax return on behalf of their client which contained a claim for Entrepreneurs’ Relief when they should have known their client was not eligible for it;
- informed their client that HMRC were incorrect in saying that a formal winding-up process needed to have taken place in order for the distribution from their client’s company to have been treated as capital and eligible for Entrepreneurs’ Relief; and
- advised their client that they could restore their company and subsequently perform a Members’ Voluntary Liquidation, which would enable them to claim Entrepreneurs’ Relief.
The member therefore failed to exercise sound judgment when applying their knowledge and skill in accordance with s130.2 of the Code of Ethics (effective from 1 January 2011 to 31 December 2019), and R113.1 of the Code of Ethics (effective from 1 January 2020).
A member was severely reprimanded by a tribunal, as well as fined £8,000, and required to pay costs following a number of compliance failures by them. They had failed to fulfil assurances provided to ICAEW following a QAD visit in respect of their requirement to:
- have procedures in place to carry out client due diligence on all clients, and to have carried out both initial and regular ongoing risk assessments and client due diligence;
- document their procedures for the identification, verification of clients and customer due diligence measures and monitoring checks; and
- have carried out regular reviews of their firm’s compliance with the Money Laundering Regulations.
At a subsequent QAD visit it was found that these assurances had not been complied with, contrary to Practice Assurance Regulation 4 (effective 1 January 2008).
They also failed to ensure that the firm had complied with the Money Laundering Regulations 2007 as follows:
- paragraph 19, in that they did not keep the records required to evidence the customer’s identity or supporting records in respect of a business relationship;
- paragraph 20, in that they did not monitor and manage their compliance with the Money Laundering Regulations 2007; and
- paragraph 7, in that they did not ensure that appropriate and complete customer due diligence measures were applied to all of their clients.
In addition, they also failed to ensure that their firm had complied with the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 as follows:
- Regulation 18, in that they did not take appropriate steps to identify and assess the risks to the firm and did not document such risk assessments;
- Regulation 19, in that they did not establish and maintain policies, controls and procedures, in writing, to mitigate and manage the risks; nor regularly review and update the policies, controls and procedures;
- Regulation 27, in that they did not establish and maintain appropriate and risk-sensitive policies and procedures relating to customer due diligence measures and ongoing monitoring and risk assessment and management; and
- Regulation 40, in that they did not keep the documents and information obtained to satisfy the customer due diligence requirements.
Lastly, they failed to cooperate with the Practice Assurance Committee in carrying out the firm’s functions under the Practice Assurance scheme by not providing the below information requested, contrary to Practice Assurance regulation 8 (effective 1 July 2019) and:
- provide an anti-money laundering training plan for the firm and its staff;
- submit a copy of the firm’s firm-wide risk assessment; and
- submit examples of completed customer due diligence (CDD) for one new client and two longstanding clients.
The information provided should include:
- know your client details;
- risk assessment;
- confirmation of the steps taken to verify the client’s identity and evidence of ongoing review for existing clients;
- confirmation that CDD has been documented on all clients (including identity evidence and risk assessment) for all clients; and
- confirmation by 31 May 2020 that CDD will be subject to an on-going review and this review will be documented.
In the final published disciplinary tribunal in this update, a member, who also is a licensed insolvency practitioner (IP), was severely reprimanded, subjected to a financial penalty of £5,000 and required to pay costs when it was found that as Supervisor of the Individual Voluntary Arrangement (IVA) of Mr ‘A’, they had:
- failed to comply with the fundamental principle of Professional Competence and Due Care and/or Professional Behaviour as they failed to send annual progress reports to the IVA creditors in accordance with rule 5.31a of the Insolvency Rules 1986 and/or rule 8.28 of the Insolvency (England and Wales) Rules 2016; and
- failed to report annually on the progress of the IVA to all creditors bound by the arrangement within two months of the end of the anniversary of the commencement of the IVA. They also failed to comply with:
a) rule 5.31A of the Insolvency Rules 1986 between 21 May 2016 and 21 July 2016; and/or
b) rule 8.28 of the Insolvency (England and Wales) Rules 2016 between 21 May 2017 and 21 July 2017, 21 May 2018 and 21 July 2018, 21 May 2019 and 21 July 2019, 21 May 2020 and 21 July 2020.
It was also found that they had breached the fundamental principle of Professional Competence and Due Care and/or Professional Behaviour of the Code of Ethics (Part D) following their appointment as supervisor of Mr ‘A’s Individual Voluntary Arrangement (IVA) as they failed to adequately progress the IVA and/or arrange for a decision of the creditors to take place to determine the steps to take.
Settlement orders with a firm and three of its licensed IPs were agreed and published, whereby the firm was severely reprimanded and fined £20,000 in connection with the acceptance of administration appointments they had failed to comply with the ICAEW Code of Ethics and, in particular, its responsibility under paragraph 1.8 for ensuring that its partners and staff carry out their work in accordance with the fundamental principles, in one or more of the following ways:
a) the acceptance of appointments process failed to ensure that all administrations with intended pre-pack sales to connected parties were categorised as higher than normal risk and would be subject to review by someone independent from the proposed appointees; and/or
b) the Ethical Review standard template forms did not require the proposed administrators to disclose all information which was relevant to the identification of potential threats to their compliance with the fundamental principles.
Two of the IPs were each severely reprimanded and fined £18,000 because prior to accepting two separate appointments as a Joint Administrator, in breach of the fundamental principle of objectivity and/or professional competence and due care and, in particular, paragraphs 400.7 and/or 400.17 and/or 400.19 of the ICAEW Code of Ethics, they failed to identify and evaluate threats to their compliance with the fundamental principles arising out of their personal and/or professional relationship and/or failed to identify safeguards to reduce the threat to an acceptable level.
And prior to accepting the two separate appointments to act as Joint Administrator Limited in breach of the fundamental principle of professional competence and due care and, in particular, paragraph 400.74 of the ICAEW Code of Ethics, they failed to create sufficient written contemporaneous records demonstrating the steps that they took, and the conclusions they reached, in identifying, evaluating and/or responding to any actual or potential threats to compliance with the fundamental principles which might arise during the course of their professional work.
The third IP was severely reprimanded and fined £5,600 for similar conduct as the above two but on one occasion only.
In an unrelated settlement order, a member was severely reprimanded and fined £3,000 because in providing a reference for an individual to act as guarantor on a rental property agreement, they provided a reference in circumstances when they should not have done. This was in breach of R111.2 of the ICAEW Code of Ethics (effective 1 January 2020).
Consent orders were made and published by the Conduct Committee in the following cases:
A firm was reprimanded and fined £17,500 because it had issued an unmodified audit opinion on three years of financial statements on a limited company client which stated that the audit had been conducted in accordance with International Standards on Auditing (UK and Ireland) when:
- the firm failed to prepare audit documentation that was sufficient to enable an experienced auditor, having no previous connection with the audit to understand the audit procedures performed and the results of the audit procedures performed in respect of the consistency of the professional indemnity provision recognised in the financial statements with the stated accounting policy, in breach of International Standard on Auditing (UK and Ireland) 230 ‘Audit documentation’; and
- the firm failed to design and perform audit procedures that were appropriate in the circumstances for the purpose of obtaining sufficient appropriate audit evidence that the professional indemnity provision recognised in the financial statements was consistent with the stated accounting policy, in breach of International Standard on Auditing (UK and Ireland) 500 ‘Audit evidence’.
Another firm was severely reprimanded and fined £16,200, having issued assurance opinions on the Client Assets Sourcebook (CASS) audits for a limited company client which stated that they had carried out procedures in accordance with the CASS Assurance Standard issued by the Financial Reporting Council (FRC) when it did not, in that the firm did not comply with relevant ethical requirements, including those pertaining to independence as it failed to adequately consider an independence threat due to long term association and failed to communicate such matters to those charged with governance of that client for the three consecutive financial periods.
In one of those years, the firm also issued an unmodified opinion on the CASS audit when it failed to report all breaches that it identified and it did not evaluate the client’s compliance with each relevant CASS rule at the period end date, specifically, CASS 5.5.68R.
A member was reprimanded and fined £6,000 for multiple compliance failures, including:
- failing to notify the Members’ Registrar of ICAEW of the formation of their two practices;
- engaging in public practice, for seven years, through their firm, without the minimum level of professional indemnity insurance (PII) as required by Regulation 3.2 and/or 3.3 of the PII Regulations;
- engaging in public practice, for two years, through their firm, with PII that was not provided by an ICAEW participating insurer contrary to Regulation 3.1 of the PII Regulations;
- failing to ensure their firm was supervised by an appropriate anti-money laundering supervisory authority contrary to Parts 1—6 of the Money Laundering Regulations 2007 (effective 15 December 2007 until 25 June 2017).
- failing to ensure their firm was supervised by an appropriate anti-money laundering supervisory authority contrary to Regulation 8 and Parts 1—6 and 8—11 of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (effective from 26 June 2017).
A licensed IP was reprimanded and fined £3,000 because as Liquidator of a limited company they:
- failed to call meetings of the company and creditors and lay the necessary account before those meetings pursuant to Article 168 of the Companies (Jersey) Law 1991 for five consecutive year ends; and
- failed to communicate with Mr “Y” regarding their position as a member of the Liquidation Committee contrary to the Fundamental Principles of Professional Competence and Due Care and/or Professional Behaviour as set out in the Code of Ethics Part D at paragraphs 400.4c and 400.4e.
A firm was reprimanded and fined £1,000 because they did not ensure they acted with professional competence when they:
- failed to advise “X” Ltd of the steps the company should take to register their Enterprise Management Incentive (EMI) scheme with HMRC;
- incorrectly advised “X” Ltd that “M” LLP would register the EMI scheme with HMRC;
- failed to notify HMRC that “X” Ltd had granted EMI options to four employees by the deadline of 3 February 2017;
- failed to advise “X” Ltd of the consequences of the failure to register the EMI scheme; and
- failed to advise “X” Ltd of the consequences of the failure to notify the grant of EMI scheme options to HMRC.
The firm therefore failed to exercise sound judgment when applying their knowledge and skill in accordance with s130.2 of the Code of Ethics (effective from 1 January 2011 to 31 December 2019).
A firm was reprimanded and fined £700 for allowing Ms “A” to prepare and sign the audit reports (for and on behalf of the firm) for the three clients for one year when the firm was aware, or ought to have been aware, that Ms “A” was not authorised to sign such reports on behalf of the firm, which was in breach of Audit Regulations 4.01 and 4.04 and the firm was therefore liable to disciplinary action under Disciplinary Bye-law 6.2a (effective 14 October 2019).
A member was reprimanded for failing to ensure their firm was supervised by an appropriate anti-money laundering supervisory authority contrary to Regulation 8, and parts 1—6 and 8—11 of the Money Laundering Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. They were liable to disciplinary action under Disciplinary Bye-law 4.1a.
All the above settlement and consent orders came with a requirement to pay costs.
One fixed penalty was publicised in the period to a member who, for nearly five years, engaged in public practice without holding an ICAEW practising certificate, contrary to Principal Bye-law 51a.
Further details can be found on our Disciplinary Database or please visit our Public Hearings page.