KPMG and its partner Richard Hinton had previously admitted misconduct in relation to its 2011 compliance reports for The BNY Mellon Limited and the BNY Mellon London Branch.
The FRC opened its investigation into KPMG in 2015 following a referral from the Financial Conduct Authority (FCA).
The FCA previously fined two companies in the BNY Mellon Group a total of £126m for failure to comply with custody rules.
In the tribunal hearing yesterday, the FRC proposed the £12.5m penalty, calling KPMG’s misconduct “truly exceptional”, according to reports.
“We accept and regret that some of our work did not fully reflect all aspects of the new guidance applicable to Client Assets Reports issued by the FRC in 2011,” a KPMG spokesperson said.
They added that the firm has since enhanced its client asset sourcebook procedures and training to reflect “further fundamental changes in the regulatory environment”.
The firm also said it was committed to cooperating with the FRC to bring “historic cases to conclusion as swiftly as possible”.
But the firm did contest the FRC’s sanctions proposals.
“In this instance [KPMG] could not agree with the FRC on the level of appropriate sanctions, which will now be determined by an independent tribunal,” the spokesperson said.
“As these proceedings are ongoing, we are unable to comment further,” they added.
The tribunal will continue throughout today and possibly tomorrow, after which the chair will consider the extent of the fines and sanctions levied against KPMG.