FCA fines PwC over London Capital & Finance failures
The Financial Conduct Authority (FCA) has fined an audit firm for the first time, over PwC’s failure to flag fraudulent activity at collapsed mini-bond provider London Capital & Finance (LCF).
The City watchdog said that it has issued the ‘big four’ firm with a £15m penalty as it did not act on “red flags”.
LCF collapsed in January 2019 owing more than £230m to more than 11,500 bondholders. The firm was found to have misled investors about the risks involved.
The FCA said that PwC encountered “significant issues” during its 2016 audit of LCF.
Read more: Who should be liable for investor losses at FCA-authorised firms?
A senior individual at LCF acted aggressively towards auditors and the firm provided PwC with inaccurate and misleading information.
This led PwC to suspect that LCF might be involved in fraudulent activity, the FCA said, adding that 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. Whether or not its suspicions remained, the FCA said it still had an obligation to report its previous concerns.
Read more: London Capital & Finance creditors to recoup less funds than expected
“Auditors have a central role to play in keeping our markets clean,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.
“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.”
The FCA has previously censured LCF for its unfair and misleading financial promotions of mini-bonds and has fined and banned a former LCF director under the same charge.
The Serious Fraud Office has an open criminal investigation into the failure of LCF.
The Financial Services Compensation Scheme has paid out £57.6m to eligible bondholders who lost money when LCF collapsed. The government has also paid £115m through a one-off scheme which is now closed. The compensation scheme has been described as an exceptional case by legal experts, as it is highly unusual for the Treasury to step in and repay investors.
