PricewaterhouseCoopers LLP (PwC) is being sanctioned by the U.K.’s Financial Conduct Authority (FCA) for failing to report concerns about an audit client.
The FCA fined PwC £15 million for failing to report that investment firm London Capital & Finance plc (LCF) might have been involved in fraudulent activity following a difficult audit of the firm in 2016.
The fine marked the FCA’s first penalty against an auditor.
“PwC encountered significant issues throughout their 2016 audit of LCF. A senior individual at LCF acted aggressively towards auditors, and the firm provided PwC with inaccurate and misleading information,” the regulator said in a release.
While PwC eventually completed the audit and concluded that the firm’s financials were accurate, the FCA said PwC was still obligated to report its concerns to the regulator.
“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,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA, in a release.
“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 added.
In 2019, LCF went into financial administration after it was ordered to withdraw misleading promotional material for mini-bonds, the FCA noted.
“Thousands of investors were misled because they were not given the full picture about the risks of the product,” the regulator said. “The Serious Fraud Office has an open criminal investigation into the failure of LCF.”
No formal allegations have been made as a result of that investigation.
The Serious Fraud Office said it has investigated several individuals in connection with possible fraud and money laundering offences as part of its ongoing inquiry.
LCF was censured by the FCA for “its unfair and misleading financial promotions of mini-bonds,” and a former director of the firm was fined and banned, the regulator noted.
Additionally, the U.K.’s Financial Services Compensation Scheme has paid out £57.6 million to investors who lost money when LCF collapsed, and the government paid out another £115 million to harmed investors, the FCA said.
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