PwC was fined £15m for failing to alert the FCA to suspected fraudulent activity at LCF.

PwC has been fined £15m for failing to alert the Financial Conduct Authority (FCA) to suspected fraudulent activity at London Capital & Finance (LCF).

The FCA, which is fining an audit firm for the first time, said

• PwC encountered “significant issues” throughout its 2016 audit of LCF, with the company providing the Big Four outfit with “inaccurate and misleading information”.

A senior individual at LCF also acted aggressively towards auditors.

According to the FCA, PwC found the audit very complex and took “considerably longer to complete” than anticipated. The firm ultimately suspected that LCF might be involved in fraudulent activity.

As such, the FCA believes PwC was “duty bound to report those suspicions” as soon as possible but failed to do so.

“PwC eventually satisfied itself that LCF's 2016 accounts were accurate,” said the FCA. “Whether or not its suspicions remained, it still had an obligation to report its previous concerns to the FCA.”

LCF ultimately entered administration in January 2019 after the regulatory body ordered it to withdraw misleading promotional material for the sale of mini-bonds. Thousands of investors had been misled because they weren’t given the complete picture of the product's risks.

The Serious Fraud Office has an open criminal investigation into the failure of LCF.

Several red flags

In its Final Notice, the FCA recognised that PwC’s breach was not reckless or deliberate, that the Big Four firm was not involved in LCF's misconduct, and that, as an auditor, it was not responsible for seeking out or fully investigating suspected fraud.

“The Authority does not hold PwC directly responsible for the losses resulting from LCF’s collapse,” it added. “However, by failing to report its reasonable belief about potential fraud at LCF, PwC failed to make the Authority aware of information which may have been materially significant 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 are required by law to report suspicions of fraud to the FCA.

“There were several 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.”

In a statement, PwC added: “We have reached a settlement with the FCA to resolve an unintentional reporting breach.”

SOURCE

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