PwC has been fined £15m by the Financial Conduct Authority (FCA) for ignoring “red flags” in the London Capital & Finance (LCF) mini-bond scandal.
The fine, which is the first one the FCA has issued against an audit firm, comes after PwC failed to report its suspicions about the defunct company’s involvement in fraudulent activity.
PwC is said to have suspected potential fraud after encountering “significant issues” during its 2016 audit of the savings and investment firm.
This included claims that a senior individual at LCF acted aggressively towards auditors and provided PwC with inaccurate and misleading information.
PwC also found the audit “very complex”, claiming it took much longer than expected to complete.
The big four auditor was eventually “satisfied” that the investment firm’s 2016 accounts were accurate.
However, the financial watchdog on Friday said PwC was “duty bound” to share its concerns as soon as possible.
‘Unintentional reporting breach’
The FCA said: “Whether or not its suspicions remained, it still had an obligation to report its previous concerns to the FCA.”
The FCA concluded that the PwC’s breach was not reckless or deliberate, adding that the firm was not involved in LCF’s misconduct nor was it responsible to fully investigate suspected fraud.
A PwC spokesman said: “We have reached a settlement with the FCA to resolve an unintentional reporting breach.”
LCF was an investment firm that sold unregulated mini-bonds promising returns of up to 11pc.
The company entered into administration in 2019 after being ordered by the FCA to withdraw “misleading promotional material” about mini-bonds.
LCF owed £237m to nearly 12,000 investors at the time of its collapse.
Administrators’ attempts to recover the funds are ongoing, while more than £170m was paid out to bondholders through government compensation schemes.
In February, FCA issued a £31,800 fine to Floris Jakobus Huisamen, a former director of LCF who was found to have “recklessly” promoted hundreds of mini-bonds, and banned him from working in financial services.
The FCA confirmed that the fine imposed against PwC is its final penalty relating to LCF failures.
‘Number of red flags’
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.”
PwC has already been fined for its involvement in the LCF fraud.
In May, the Financial Reporting Council fined PwC and EY after failing to identify and adequately understand LCF’s business and its internal controls.
The audit watchdog handed out penalties of £4.9m and £4.4m respectively, discounted from £7m after admitting failure.
The Serious Fraud Office’s criminal investigation into alleged fraud and money laundering at LCF is ongoing.