Clifford Chance

The FCA has taken the unusual step of exercising its powers under section 345 of the Financial Services Markets Act 2000 ("FSMA") to publicly censure an auditor for failing to report breaches of the Client Assets sourcebook ("CASS") rules to the FCA.

On 15 August 20024 the FCA censured audit firm McIntyre Hudson LLP for contravening rule 3.10.4A in the Supervision chapter of the FCA Handbook. This requires an auditor tell the FCA whether the firm it audits has met various requirements of the Client Assets sourcebook ("CASS"). The FCA found that between 1 July 2015 and 28 May 2019, the audit firm failed to report a total of 25 breaches (by the relevant clients) of CASS rules to the FCA.

The FCA's powers to take action against an auditor of an authorised persons or recognised investment exchange are derived from s 345 of FSMA pursuant to which in appropriate cases the FCA can disqualify the auditor from acting as auditor for various classes of authorised person, publicly censure the auditor, or impose a financial penalty of such amount the FCA considers appropriate.

Although the FCA indicated that it considered the audit firm's failure in this case to be serious, in deciding to impose a censure rather than a financial penalty, the FCA indicated that it considered a censure would be sufficient to achieve deterrence. It took into account that there was no loss to consumers or investors. It also recognised the failings were not deliberate or reckless, the audit firm made no profit out of the breaches, and no action had been separately taken against either of the firms whose breaches of the CASS rules the auditor had failed to report.