German fund company audited by KPMG reveals years of compliance failure in its UK branch

A German fund group audited by KPMG has not complied with UK law at its London branch for years, Financial news can reveal.

German € 13 billion fund management firm Aquila Capital has not contributed to a pension scheme for its UK employees in the two years since it was legally required to do so in July 2019, according to an internal email and payslip from a UK member of the company. employees seen by FN. The company said it employed seven people in its London team last month.

Aquila had “taken longer than expected” to set up a pension scheme for its UK employees and the UK pensions regulator was “fully aware of this problem,” an Aquila spokesperson said. KPMG declined to comment on its audit of the fund company. The spokesperson added that “backdated pension contributions will be paid to all affected employees.”

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Evolve, a pension fund approached by Aquila Capital, said FN he had “no choice but to report” the group of funds to the regulator in January after signing up for Evolve’s services but did not submit relevant data or make a payment.

Failure to comply could see the sustainable investment group facing thousands of pounds in fines, according to analysis by two UK pension law experts, who spoke to FN after analyzing the application data on the regulator’s website. The lawyers are not involved in this case. KPMG and Aquila Capital declined to comment on any potential ramifications.

UK law requires employers to automatically enroll their employees in the country in an occupational pension scheme, no later than three months after an employee has started working, and to start contributing to that scheme on behalf of the employee since then.

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“It’s very strictly regulated,” said Martin Jenkins, a partner at Irwin Mitchell law firm, who was not involved in the case and spoke about UK legal requirements in general. “A non-payment of contributions [into employees’ pension] or failure to simply put the plan into action is a violation of the law by the employer. “

KPMG is under investigation in the UK regarding its audit of outsourcing company Carillion in the run-up to its 2018 collapse. A KPMG spokesperson said FN in early September that he was taking the Carillion case “extremely seriously” and “had fully cooperated with our regulator throughout their investigation.”

The collapse of Wirecard in Germany and Greensill in Australia has also drawn attention to the role of listeners. Wirecard, audited by EY, subsequently appointed KPMG as external auditor for investigate allegations of wrongdoing. The German company filed the German equivalent of bankruptcy last year. KPMG was not involved in an audit of Greensill.

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The lawyers said FN the Aquila Capital case again raises questions about the effectiveness of the audit industry.

“If there was no mention of the pension plan [or delays around setting it up] in the annual accounts of the company, it is a failure, according to a senior lawyer specializing in pensions who was not involved in the case. “If auditors were not informed, then they could say that an employer has breached its obligations because part of an employer’s obligation is to disclose all relevant information to its auditors.

“Both parties can blame each other,” according to a separate regulatory lawyer, who was not involved in the case. “It’s a long-standing problem. “

KPMG’s German office made no mention of Aquila’s failure to comply with UK pensions law according to the group’s annual accounts for the 12 months to December, according to documents signed by KPMG and seen by FN.

Jenkins said employers were legally required to itemize their retirement obligations in their company’s accounts and that he would generally expect to see “any failure to comply with relevant legislation … [as] a note to the accounts ”.

UK and EU law requires business leaders to ensure that the annual accounts give a true and fair view of their business, including by pointing out any possible legal risk to any part of their business group, according to the two anonymous lawyers mentioned above, who were not involved in the case.

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Failure to comply with UK pensions law would be considered “a cabinet disclosure event to the auditor,” the senior regulatory counsel said. The lawyer added that the auditor should also “receive updates from its own network of firms covering the footprint of individual audit clients to say what material changes have occurred during the period audited.”

The Carillion collapse was a catalyst in the UK government’s overhaul of the audit industry and its regulator. The government has held consultations on potential industry reforms, but has yet to introduce legislation to make changes. Instead, it has so far relied on the Financial Reporting Council, the UK’s accounting industry regulator, to implement changes through new regulations, in the hope to restore confidence in the audit industry.

Aquila Capital told its London-based employees in a September 18, 2020 email, seen by FN, that he was “currently exchanging key data” with “EVOLVE … a specialist UK regulated pension provider” with which he had chosen to partner.

The email stated that the fund group, which is regulated by the UK’s Financial Conduct Authority and Germany’s BaFin, expected the process to “end no later than October” 2020.

The group then told its UK employees in June 2021 that it “was launching the UK pension scheme”, according to a person familiar with the matter.

A pay slip from a UK based employee dated July 23, seen by FN, however, does not include a line relating to company pension contributions on behalf of their employees or to employee pension contributions.

As of mid-September 2021, UK employees at Aquila had not been contacted by Evolve “and no one has had the opportunity to opt out – contrary to what was stated in the email,” said the person close to the file.

The person said the company’s lack of compliance had called into question its credentials as an environmental, social and governance investor.

“As a company that claims to focus on ESG, Aquila Capital is clearly failing on the S element, especially in the context of (…) its own UK employees,” the person said.

ESG criticism comes against a backdrop of growing backlash against fund groups that espouse their environmental, social and governance credentials. In mid-September, Desiree Fixler, the former head of sustainability at German asset manager DWS, claimed the company had distorted its ESG capabilities in its 2020 annual report.

His action sparked investigations by the United States Securities and Exchange Commission and German regulator BaFin.

A spokesperson for Aquila Capital said: “We are currently working with our expert external advisers to put in place an appropriate retirement solution in order to meet our retirement obligations to our UK staff as soon as possible, also taking into account wishes and comments from our employees. “

“We provided the terms and conditions of the revised pension plan to all employees several weeks ago,” the spokesperson added.

Aquila Capital has two funds listed on the London Stock Exchange: the Aquila European Renewables Income fund and the Aquila Energy Efficiency Trust. Because the funds do not have UK employees, they are not part of UK retirement requirements, a spokesperson for Aquila Capital said.

BaFin and FCA spokespersons declined to comment on the matter. The pension plan offered by Aquila Capital is no longer that of Evolve. Aquila Capital declined to comment on the name of its current pension provider.

A KPMG spokesperson declined to comment on Aquila’s comments on the matter and the pension regulator’s awareness of its compliance lapses.

A spokesperson for the UK pension regulator also declined to comment on his involvement in the case.

To contact the author of this story with comments or news, email Lucy McNulty

About Norma Wade

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