Accountancy firm PwC has been fined by the UK’s Financial Conduct Authority for failing to report suspicions of fraud during an audit of the LCF fund, in the watchdog’s first ever fine against an auditor.
The 2019 collapse of London Capital & Finance (LCF) – which sold high-yield bonds that turned out to be high risk was one of the biggest City scandals in recent years.
The markets watchdog handed PwC a £15 million (R342m) fine after it signed off an audit of the group in 2016, and did not report suspicions around the group’s financial conduct.
PwC faced “significant issues” during the “very complex” audit, the watchdog said, with LCF giving the auditors “inaccurate and misleading information”.
According to the FCA, this “led PwC to suspect that LCF might be involved in fraudulent activity”.
But while PwC suspected fraud, the firm did not report this to the FCA as quickly as possible – which is required under UK regulations – and signed off on the audit.
“Auditors have a central role to play in keeping our markets clean,” said Therese Chambers, joint executive director of enforcement and market oversight.
“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,” she said.
LCF, which was created in 2012, sold mini-bonds promising high returns, and nearly 12 000 people had invested £237 million (R5.5 billion) in the fund by the time it collapsed.
The FCA itself faced heavy criticism over the case for failing to act in time after being warned of problems with LCF several years earlier.
There is an ongoing criminal investigation by the Serious Fraud Office into LCF.
AFP