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PWC has been fined £15 million for failing to warn about alleged fraud at London Capital & Finance (LCF).
The auditor is the first accounting company to be penalised by the City authority.
The Financial Conduct Authority’s inquiry discovered that while working on the minibond company’s 2016 accounts, PWC’s audit team discovered several red lights but neglected to notify the regulator.
The warning flags included a senior member at LCF who ‘behaved aggressively’ towards the auditors and the firm, supplying erroneous and misleading information to PwC.
The accounting firm also deemed the audit ‘ very difficult’, alleging it took significantly longer than planned.
Following this, PwC suspected fraud at LCF but did not report it to the watchdog and signed off on the accounts.
According to a watchdog official, ‘PwC was duty bound to submit those suspicions to the FCA as soon as possible, but they failed to do so.’
Therese Chambers, director of enforcement at the City regulator, added: “They should have acted on them immediately.” Their failure to do so robbed the FCA of potentially critical information. LCF went bankrupt in 2019, owing around £237 million to more than 11,600 investors who purchased its hazardous minibonds. The collapse would become one of Britain’s most prominent financial scandals, as many investors were elderly and had invested their life savings in the company.
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Much of the money was spent on speculative property developments, a helicopter purchased for a company controlled by LCF, and equestrian competitions.
Administrators are still attempting to collect the funds, and more than £170 million has been paid out to bondholders through government compensation systems.
A PwC spokesman stated, ‘We have negotiated a settlement with the FCA to rectify an accidental reporting breach.’
In May, the Financial Reporting Council fined PwC and EY for failing to identify and understand LCF’s business and internal controls. The audit watchdog imposed penalties of £4.9 million and £4.4 million, respectively.
Meanwhile, the Serious Fraud Office is conducting a criminal inquiry into LCF’s failure after its former CEO, Michael ‘Andy’ Thomson, was sentenced to 10 months in prison in 2023 for violating a bank account restraint order.
