Deloitte hit by record £750,000 fine for failings in wealth management arm

On same day as FSA blow, court is told chief 'is not man of his word'

Deloitte & Touche, the Parmalat auditor, was hit with the biggest fine imposed on a financial advice firm by City regulators yesterday as its chief executive was accused of being untrustworthy by four senior Deloitte partners in a separate High Court case.

In one of the grimmest days for Deloitte and its UK chief executive, John Connolly, the Financial Services Authority announced it was fining Deloitte & Touche Wealth Management (DTWM) £750,000 for systemic and prolonged compliance failings that it regarded as "wholly unacceptable". The FSA said that during 1999-2001, DTWM had ignored warnings about its compliance standards and had shown disregard for the UK regulatory system.

The company, which offers personal financial advice on pensions and tax matters, had such woeful record-keeping that in 97 per cent of client cases reviewed, it was unable to ascertain whether financial advice given had been suitable. This meant that in cases involving pensions mis-selling, compensation which might have been due was unacceptably delayed, according to the FSA. To make matter worse, DTWM's problems could have been avoided if it had taken advantage of Deloitte's in-house expertise in reviewing cases of possible pensions mis-selling.

The FSA said: "DTWM was owned by the UK partnership of Deloitte & Touche and members of its senior management during the relevant period were partners of Deloitte & Touche, which included a substantial and highly regarded financial services advisory practice in this very area.

"Adequate resources were available to work on DTWM's pensions review but were deployed to work on the pensions reviews of chargeable outsourced client contracts."

The £750,000 fine is three times bigger than the previous record fine imposed on a financial advice firm. The FSA said the DTWM fine would have been "substantially greater" were it not for Deloitte's co-operation with the FSA's investigation and decisive action to change DTWM's management.

The FSA's damning verdict on Deloitte's failings could not have come on a worse day for Mr Connolly, who was at the High Court yesterday to answer charges in a dispute involving four partners at Deloitte's private equity practice. They claim Mr Connolly reneged on severance arrangements they had agreed on 16 months ago when joining from Arthur Andersen, the accountancy group destroyed by the Enron scandal.

The four resigned in November to join rival KPMG along with eight other staff from Deloitte's private equity division.

Rustom Karaghat, who secured a £1.7m golden hello from KPMG, said: "Promises have been broken. The promise of a European network for us to use has been broken. We realise we could not trust management any more. That is why we decided to leave. We were told if we didn't think it was working out after a year we could leave."

They claim Mr Connolly agreed they could go without restrictions although they are now being forced to work their full six months' notice and have been barred from dealing with existing clients for two years.

However, Mr Connolly told the court he had agreed that the four partners could have restriction-free exits within their first 12 months, after which they would be subjected to covenants. "I regret that this position has been reached. They are very good people," Mr Connolly said.

Two weeks ago Mr Connolly was asked to resign by a Liberal Democrat MP after reports in The Independent detailing his role as an auditor in the Barlow Clowes scandal, the savings firm that collapsed forcing the government to pay £150m in compensation. He was officially reprimanded by the accountancy watchdog for a lack of professional efficiency, conduct and competence.

Yesterday Mr Connolly said his involvement in Barlow Clowes was not a cause for concern for himself or anyone else at Deloitte.