EY wins share of BNP audit amid break-up planning

EY has won a share of the €60mn-a-year contract to audit BNP Paribas, a significant victory for the firm despite criticism of its previous work as auditor of European financial services companies Wirecard and Danske Bank.

The decision by the eurozone’s biggest bank by assets came against the backdrop of uncertainty created by EY’s planning for a historic split between its audit and advisory businesses.

BNP was aware of the potential separation of EY’s audit and advisory businesses before it made its final decision to choose the firm, said a person familiar with the matter. The bank’s shareholders will be asked to ratify the appointment at its annual general meeting next spring.

Senior partners at rivals had privately questioned whether EY would be able to win new audit mandates before its future was resolved because of the lack of clarity over which expertise would be retained by the audit business following a proposed spin-off and public listing of its consulting arm.

From 2024 EY will work alongside fellow Big Four accountant Deloitte, which has been one of BNP’s auditors since 2006. PwC and Mazars, which have been auditors to BNP since 1994 and 2000 respectively, will step down under mandatory rotation rules.

France operates an unusual joint audit system, where at least two external accounting firms share the work of checking the financial statements of large companies. As BNP is audited by three of France’s five largest audit firms, it was in effect left with a choice between EY and KPMG for the role next time around unless it opted for a much smaller firm.

In recent years, BNP has appointed its auditors for six-year terms, which can be renewed up to a maximum of 24 years under French capital markets rules.

EY’s EMEIA financial services leader Omar Ali announced EY’s appointment by BNP this week in an internal memo to staff seen by the Financial Times.

“We are now the clear market leaders in financial services audit in Europe,” he said.

EY’s audit clients in Europe include Deutsche Bank and UBS as well as UK-listed Standard Chartered, NatWest and Schroders. It has recently won audit tenders by FTSE 100 insurers Aviva and Prudential.

It has continued to win audit contracts despite its role as auditor of Wirecard, the German payments company which collapsed in a fraud scandal in 2020 after EY admitted €1.9bn of cash on its balance sheet did not exist.

In 2020 Danish prosecutors dropped an investigation into whether EY breached anti-money laundering laws in connection with its auditing of Danske Bank. An earlier report by a government agency found that EY had discovered information about potential money laundering issues at the bank and should have made further inquiries and reported the matter to the authorities.

EY and BNP declined to comment on the appointment.

Winning the BNP audit is a boost for EY, whose global boss Carmine di Sibio updated its nearly 13,000 partners globally about its demerger planning in a 75-minute webcast on Thursday.

Under plans for a potential IPO of the advisory arm, consulting partners would each receive shares in the newly independent business worth up to $8mn while audit partners would receive a cash payout of two to four times their annual salary, according to people familiar with the matter.

However, any cash payout to audit partners is likely to be reduced to cover the cost of investment in the business, including technology and staff incentives, according to a person with knowledge of the firm’s planning.

The size of any payout “also depends on timing and what the markets are like”, the person said. Since EY began exploring a break-up, company valuations have been hit by concerns over global economic growth and actions by the US Federal Reserve to curb inflation.

EY’s roughly 800 UK partners will receive an additional briefing on the break-up at a five-star hotel in London next week, according to people at the firm.