JPMorgan kicks off audit review for vast European arm

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JPMorgan is the latest Wall Street bank to review its audit relationship in Europe with the big four firm PwC, Sky News learns.

JPMorgan Chase is kicking off a review of its audit relationships in Europe in a move which could see it become the second Wall Street giant this year to switch the supervision of its London-based operations.

Sky News has learnt that JPMorgan (JPM) has begun approaching accountancy firms about taking over the role held by PricewaterhouseCoopers (PwC) for the last decade.

The review of PwC’s role as the auditor of JPMorgan Securities (JPMS) may not lead to a change in provider, sources close to the situation said on Tuesday, because the bank will not be forced to rotate for another 10 years.

However, a number of other European entities owned by JPMorgan, such as its operations in Dublin, are also conducting an audit tender process on the basis that a new firm will have to be appointed because PwC has been in place for 20 years.

PwC’s relationship with the New York-listed JPMorgan Chase is not under review.

The processes being run by JPM have emerged just two months after Goldman Sachs appointed Mazars, the UK’s eighth-biggest accountancy firm, to audit its international division, which includes its London-based investment banking and trading hub.

That role had also previously been held by PwC.

The reviews by two of Wall Street’s dominant players come at a time when the UK audit market is facing a fundamental shake-up amid growing pressure from a number of regulators.

JPMS is a particularly large player in European investment banking, recording revenue of almost $8.2bn in 2017 and employing thousands of people.

The bank is understood to have approached firms outside the big four auditors, with Goldman having opted to appoint Mazars partly because of the volume of consulting work undertaken for it by PwC’s principal rivals: Deloitte, EY and KPMG.

There would, however, be questions about the ability of some smaller firms to resource the supervision of a financial markets operation as large as that owned by JP Morgan.

Proposals from the Competition and Markets Authority would entail greater separation of the big accountants’ audit and consulting practices, while some, such as KPMG, have already announced that they will cease “all-but-essential” non-audit work for their FTSE-350 audit clients.

Auditors are facing the biggest overhaul of the way they are regulated in decades, with a new watchdog – the Audit, Reporting and Governance Authority – due to be established next year.

Among the most important planned reforms, on which the government is consulting, would be the requirement for most companies in the FTSE-350 to appoint joint auditors.

Sky News revealed last week that the growing pressures on the profession had prompted EY to inform its FTSE-350 audit clients – which include J Sainsbury and Royal Bank of Scotland – that fees would have to rise.

In a statement, Hywel Ball said it was “important that the economic returns of audit support the financial resilience required and that the companies we audit are also committed to quality governance and corporate reporting”.

The overhaul of how audit firms are run and regulated risks, however, having unintended consequences.

It emerged last week that KPMG would cease auditing a quarter of Britain’s building societies as it seeks to reduce its exposure to a financial services sector that has been the source of millions of pounds in fines.

The debate about the role of auditors escalated after the collapse of BHS, the department store chain, and then Carillion, the construction group.

Those companies were audited by PwC and KPMG respectively.

PwC was hit by a record fine for its work on BHS, while a series of investigations into Carillion and KPMG remain ongoing.

A spokesman for JPMorgan declined to comment.

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