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November 29, 2022

New York Regulator Didn’t Find Statements by Supposed Objective PwC Director to Be All That Objective

Yesterday, we saw quite a bit of coverage on New York's Department of Financial Services throwing the book — albeit a comic book — at PwC for writing a mealy-mouthed report on Bank of Tokyo-Mitsubishi's violation of anti-money laundering laws. The firm's regulatory advisory unit will cough up $25 million and will forgo any new business from New York-regulated banks for two years. 

In its settlement, DFS states that "PwC's work as a consultant for the Bank in this matter did not demonstrate the necessary objectivity, integrity, and autonomy that is now required of consultants performing regulatory compliance work for entities supervised by the Department." 

This is interesting because we don't necessarily think of "consultants" as being "objective." Typically, consultants are viewed as expensive hired hands to do some work that a company cannot or will not do itself with an end goal in mind (e.g. complete an analysis, implement an expensive new ERP system, write a mealy-mouthed report, etc.).

But if you go back and read that again, the "necessary objectivity, integrity" etc. etc. is "now required of consultants performing regulatory compliance work for entities supervised by the Department" which implies that those things weren't expected in the past. Which, if you think about it, makes sense since making a mockery of objectivity is old hat for Big 4 firms. And if DFS is saying, "Sorry, guys. You gotta act like you care now," that would be a hard habit to break. PwC's head of advisory Miles Everson even said that, "the firm is committed to improving continuously and meeting changes in regulatory expectations." 

Case in point — one part of the DFS report that only Michael Rapoport at the Wall Street Journal picked up on was with regard to a director who "led the firm's technology and collection team," and it illustrates the regulator's unmet expectations quite well.

Here's Rapoport:  

One unidentified PwC director involved with the report said in emails that to "raise an issue of data completeness at this point does not do anyone, especially the bank, any good," and that probing for more information "will open up a whole other can of worms," the state regulator said. PwC withheld more than 20% of the director's compensation as a result, according to the settlement.  

To best appreciate this, here's that portion of the report in full:

Interestingly, the report says this director is "presently a partner" so that 20% cut in comp was only a temporary setback. 

But again, are these statements all that surprising? Nah. The DFS might have just expected a little too much from PwC in this case. 

I mean, maybe if DFS had picked up the tab for this report, their expectations would have been reasonable, but when a bank is paying for it, this stuff is par for the course. 

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