• This is the largest fine ever imposed on an Auditor by the DFSA

Dubai, UAE: As per the DFSA’s Media Release dated 3 October 2022, the Dubai Financial Services Authority (DFSA) has imposed fines of USD 1,500,000 (AED 5,508,750) on KPMG LLP and USD 500,000 (AED 1,836,250) on Mr Milind Navalkar a former KPMG LLP Audit Partner and DFSA registered Audit Principal (Mr Navalkar). 

The DFSA published its decisions relating to KPMG LLP and Mr Navalkar in October 2022. Both KPMG LLP and Mr Navalkar referred the DFSA’s decisions for review by the Financial Markets Tribunal (FMT), an independent appeal tribunal.

KPMG LLP and Mr Navalkar have since withdrawn their FMT references and therefore will not contest the DFSA’s findings in its decisions.

The DFSA imposed a fine of USD 15,275,925 on ACLD in July 2019.  ACLD was the only Abraaj entity authorised by the DFSA and the only entity in the Abraaj Group audited by KPMG LLP. 

The fine imposed on KPMG LLP reflects that it was only responsible for the audit of ACLD.  The other entities in the Abraaj Group were audited by other audit firms in the KPMG global network that operate outside of the DIFC.

As a DFSA Registered Auditor, KPMG LLP was required to follow international auditing standards when performing its audit of ACLD.  However, the DFSA found that KPMG LLP failed to perform some of the most basic audit procedures.  Had KPMG LLP performed its audit of ACLD to the expected standard, it would have been reasonable to expect it to have identified that, for more than five years:

  • ACLD’s financial statements did not conform to accounting rules;
  • ACLD had failed to maintain adequate capital resources; and
  • ACLD was concealing the true state of its finances from KPMG LLP.

Mr Navalkar was found by the DFSA to be involved in the failures committed by KPMG LLP, as he had overall responsibility for the conduct of the audits and reviews of ACLD.  In particular, Mr Navalkar:

  • signed off audit reports without ensuring adequate audit procedures had been performed to enable an opinion to be formed on whether ACLD’s financial statements represented a true and fair view of the condition and the state of affairs of the firm; and
  • failed to ensure the audits of ACLD’s financial statements were conducted in accordance with accounting rules.

Mr Navalkar was also found to have failed to act with professional competence and due care, contrary to Principle 3 of the Principles for Audit Principals.

It is not suggested by the DFSA that KPMG LLP or Mr Navalkar committed any deliberate misconduct, nor that they were aware of the misconduct of ACLD. The DFSA accepts that ACLD deliberately misled KPMG LLP, and by extension Mr Navalkar.

Ian Johnston, Chief Executive of the DFSA, said: "KPMG LLP’s practices and Mr Navalkar’s professional competence fell far below the standard expected, which allowed ACLD to conceal its practice of window dressing for many years. This action underscores the important role auditors play, as corporate gatekeepers, in enhancing investor confidence and maintaining the DIFC’s reputation as a global financial services hub.” 

The DFSA is responsible for the registration, oversight and suspension / removal of Registered Auditors and Audit Principals operating in the DIFC in respect of their audits of Public Listed Companies, Authorised Firms, Authorised Market Institutions and Domestic Funds.

A copy of the DFSA's Decision Notices can be found in the Regulatory Actions section of the DFSA website.

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For further information please contact:
Corporate Communications
Dubai Financial Services Authority
Level 13, The Gate, West Wing
Dubai, UAE
Email: DFSAcorpcomms@dfsa.ae
www.dfsa.ae

About Dubai Financial Services Authority (DFSA)

The Dubai Financial Services Authority (DFSA) is the independent regulator of financial services conducted in and from the Dubai International Financial Centre (DIFC), a purpose built financial free zone in Dubai. The DFSA's regulatory mandate covers asset management, banking and credit services, securities, collective investment funds, custody and trust services, commodities futures trading, Islamic finance, insurance, crowdfunding platforms, money services, an international equities exchange and an international commodities derivatives exchange. In addition to regulating financial and ancillary services, the DFSA is responsible for administering Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) legislation that applies to regulated firms and Designated Non-Financial Businesses and Professions in the DIFC. Please refer to the DFSA's website for more information.

Ian Johnston was appointed Chief Executive of the DFSA in September 2022. He previously served as the DFSA’s Chief Executive from 2012-2018. A lawyer by background, Ian had several senior executive roles in the private sector, including as CEO of one of Australia’s major trustee companies. The second half of his career being in regulation, Ian was an Executive Director at the Australian Securities and Investments Commission; Special Advisor at the Hong Kong Securities and Futures Commission; and since 2019, consulting to and advising a number of financial regulators in Europe, Asia and the Middle East.