The Financial Conduct Authority (FCA) has fined Big Four consultancy PricewaterhouseCoopers (PwC) for failing to report to the regulator their belief that London Capital & Finance (LCF) might be involved in fraudulent activity, which the FCA said potentially deprived it of useful information. This is the first time the FCA has fined an audit firm.
The regulator alleged PwC encountered significant issues throughout their 2016 audit of LCF. LCF went into administration in January 2019 after the FCA ordered the firm to withdraw misleading promotional material for the sale of mini-bonds, which saw thousands of investors misled over the risks of the product.
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.”
LCF’s actions, and PwC’s own work on the audit, led PwC to suspect that LCF might be involved in fraudulent activity. PwC was duty bound to report those suspicions to the FCA as soon as possible, but failed to do so. PwC eventually satisfied itself that LCF’s 2016 accounts were accurate but still had an obligation to report its previous concerns to the FCA.
The Financial Services Compensation Scheme (FSCS) has paid out £57.6 million to eligible bondholders who lost money when LCF collapsed.
The Serious Fraud Office has an ongoing criminal investigation into the failure of LCF and the FCA investigation was run in parallel with recent probes carried out by the Financial Reporting Council (FRC).
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