ADGM's registration authority levies $30,000 fine on KPMG for rule breach

Penalty imposed for failure to comply with auditing regulations

Abu Dhabi Global Market is one of the fastest-growing financial centres in the world. Khushnum Bhandari / The National
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Abu Dhabi Global Market's registration authority imposed a $30,000 fine on KPMG Lower Gulf for breaching its regulations.

The penalty was imposed for ineffective systems and controls that lead to non-compliance with audit requirements under the authority’s legislation, ADGM said in a statement on Thursday.

The Abu Dhabi financial centre's regulatory framework requires audit reports to be issued and signed by ADGM-registered audit principals on behalf of an ADGM-registered auditor.

However, the authority found that “KPMG demonstrated a systemic failure” in ensuring that only the company’s ADGM-registered audit principals sign audit reports for companies registered in the financial free zone.

ADGM, one of the fastest-growing onshore financial centres in the world, said the authority had engaged in continued communication with KPMG over a period of several months regarding its concerns before imposing the fine.

KPMG confirmed that systems and controls had been strengthened to avoid any breach of the rules, yet they re-occurred, prompting the regulator to take action.

The registration authority (RA) expects its registered auditors to have governance structures as well as systems and controls in place to ensure compliance.

ADGM, opened in 2015, is home to international banks, insurance houses, global asset managers as well as FinTech and cryptocurrency exchanges.

The financial free zone maintains a strict oversight of companies operating in its jurisdiction.

In April, the RA imposed financial penalties totalling $144,000 on businessman Mohammed Wasim Nazir and two of his ADGM-registered companies for breaching the financial centre’s regulations.

The businessman and his ADGM-registered companies, HSQ Holdings and PL1 Holdings, were fined for exceeding the scope of their special purpose vehicle licence, contravening ADGM’s company regulations administered by the registration authority and providing false information, the authority said at the time.

“The RA will take a robust and proportionate stance where registered auditors or registered audit principals breach their obligations,” the authority said on Thursday.

“ADGM audit firms must implement effective audit systems, controls and procedures that meet the requirements of ADGM’s internationally aligned audit regulatory framework, which in turn contribute to high-quality audits and reinforce trust in corporate financial reporting.”

The fine is the latest in a series of the regulatory troubles for KPMG.

In April, a Dubai court ordered KPMG Lower Gulf to pay more than $231 million to a group of investors who claimed to have lost money because of the poor quality of an audit by the firm on a fund they invested in, the Financial Times reported citing court documents at the time.

The judgment found that KPMG had broken international auditing regulations by approving financial records of an infrastructure fund that was managed by the failed private equity company Abraaj Group.

Updated: August 31, 2023, 10:03 AM