Audit Firm PricewaterhouseCoopers LLP ( PwC ) has been fined 15 Million by the Financial Conduct Authority ( FCA ) for failing to report suspicions that London Capital & Finance plc ( LCF ) might have been involved in fraudulent activities. This unprecedented action marks the first time the FCA has penalised an audit firm.
During its 2016 audit of LCF, PwC encountered substantial difficulties, including aggressive behaviour from a senior LCF executive and the provision of misleading information by the firm. The audit, which was far more complex and time-consuming than anticipated, led PwC to suspect potential fraudulent activities within LCF. Despite these concerns, PwC failed to promptly report them to the FCA, as required by law.
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Even though PwC ultimately determined that LCF’s 2016 accounts were accurate, the firm was still obligated to report its earlier suspicions to the FCA. This failure is at the heart of the FCA’s decision to impose the fine.
The case against LCF gained further momentum when the company went into administration in January 2019, following an FCA directive to withdraw misleading promotional material for the sale of mini-bonds. These bonds had been marketed in a way that obscured the true risks, leading thousands of investors to suffer significant losses. The Serious Fraud Office is currently conducting a criminal investigation into LCF’s collapse.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, emphasised the critical role auditors play in maintaining market integrity. She stated, “Auditors have privileged access to information and are legally required to report any suspicions of fraud to the FCA. PwC encountered several red flags that should have prompted immediate action. Their failure to act deprived the FCA of potentially crucial information.”
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The imposition of fine against PwC by the FCA serves as a reminder that audit firms must remain vigilant and proactive in reporting any suspicions of fraud, ensuring that regulatory bodies are equipped with the necessary information to protect investors and maintain market integrity.
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