FCA slaps £15m fine on PwC for failing to report fraud

It is the watchdog’s first ever fine against an auditor.

• Pramod Thomas
• 16 August, 2024

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By: Pramod Thomas

ACCOUNTANCY firm PwC has been fined by the 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 millio 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.”

LCF, which was created in 2012, sold mini-bonds promising high returns, and nearly 12,000 people had invested £237m 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.

In January 2019, LCF entered administration following an FCA directive to retract misleading promotional materials related to the sale of mini-bonds. These materials had misrepresented the risks involved, leading thousands of investors to be misled about the true nature of the investment.

There is an ongoing criminal investigation by the Serious Fraud Office into LCF.

According to FCA, the Financial Services Compensation Scheme (FSCS) has paid out £57.6m to eligible bondholders who lost money when LCF collapsed.

The government has also paid £115m to eligible bondholders through a ‘one-off’ scheme which is now closed. The work of LCF’s administrators to recover creditors’ funds remains ongoing.

(with inputs from AFP)