The Financial Conduct Authority has fined PwC £15mn for failing to report to the regulator its belief that London Capital & Finance might have been involved in fraudulent activity.
This is the first time the regulator has fined an audit firm and comes after PwC encountered “significant” issues throughout their 2016 audit of LCF.
According to the FCA, a senior individual at LCF acted aggressively towards the auditors with the firm providing inaccurate and misleading information to PwC.
LCF entered administration in 2019 owing more than £230mn and putting the funds of some 14,000 bondholders at risk.
This was after the regulator directed LCF to withdraw its promotional material for mini-bonds as it was deemed “misleading, not fair and unclear” in December 2018.
The FCA said PwC found the audit “very complex” meaning it took considerably longer to complete than anticipated.
Due to the audit firm’s own work, as well as LCF’s actions, PwC was led to suspect LCF were involved in fraudulent activity, according to the FCA.
The regulator felt PwC was “duty bound” to report those suspicions to the FCA as soon as possible but failed to do so.
Reportedly PwC satisfied itself that LCF’s 2016 accounts were accurate but the FCA felt the firm still had an obligation to report its previous concerns to it.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "Auditors have a central role to play in keeping our markets clean. They have privileged access to information and they are required by law to report suspicions of fraud to the FCA.
“There were a number of red flags that led PwC to suspect fraud. They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.”
There is currently a criminal investigation into the failure of LCF with the Serious Fraud Office.
In February this year, the FCA fined former director of London Capital & Finance, Floris Jakobus Huisamen, £31,800 and banned him from working in financial services.
According to the regulator, Huisamen was responsible for compliance at the company but "recklessly" signed off hundreds of financial promotions, which contributed to thousands of investors being misled.
The FCA’s handling of the company's 2019 collapse was branded “one of the largest conduct regulatory failures in decades” by the Treasury committee, which urged the FCA to implement a change in culture to protect consumers and financial markets.
alina.khan@ft.com
