PricewaterhouseCoopers has been ordered to pay $1 million as a settlement in a civil complaint in which the accounting firm is alleged to have conducted an audit into Merrill Lynch which was found to be flawed. The audit was to look into whether the investment bank was complying with customer protection rules as demanded by the federal watchdog, Securities and Exchange Commission. The fine was imposed the by audit watchdog in the United States, Public Company Accounting Oversight Board.
“An auditor’s attention to a broker’s compliance with the SEC’s Customer Protection Rule provides critical assurance that the business is protecting customer securities from liens by creditors of the broker. PwC failed to fulfill its obligations…” said the chairman of the Public Company Accounting Oversight Board, James Doty.
Customer Protection Rule
PwC has agreed to pay the fine imposed on it by the audit watchdog without either denying or admitting the findings. This was according to a statement issued by the accounting firm.
The alleged flawed audit in which the U.S. Securities and Exchange Commission’s Customer Protection Rule was violated was conducted three years ago. According to the rule broker-dealers are required to have particular types of customer securities held in segregated accounts that are lien-free to ensure that those funds are safeguarded from creditor claims should the brokerage business fail.
Under the Customer Protection Rule brokerages are also required to hire the services of external accountants charged with the responsibility of conducting routine audits aimed at ensuring compliance.
In the fiscal year 2014 Merrill Lynch reported that it was effectively complying with the Customer Protection Rule of the SEC. Early in 2015 the audit watchdog discovered that examination and audit reports were issued by PricewaterhouseCoopers without enough evidence having been availed by Merrill Lynch regarding the compliance assertions that the investment bank had made in line with the attestation and auditing standards of PCAOB.
Mid last year the U.S. Securities and Exchange Commission discovered that Merrill Lynch was in violation of the Customer Protection Rule as it was holding fully paid as well as excess margin securities belonging to customers in accounts that were not safeguarded from creditors or other third parties. A little more than a year ago Merrill Lynch was ordered by the U.S. Securities and Exchange Commission to pay an amount reaching $415 million as a settlement fine after it put funds belonging to its brokerage business clients at risk.