This is the first time the UK’s financial regulatory body has penalised an audit firm
The Financial Conduct Authority (FCA) has imposed a fine on PwC for failing to report suspicions of fraudulent activity at London Capital & Finance plc (LCF) during its 2016 audit.
PwC encountered significant challenges throughout the 2016 audit of LCF. A senior individual at LCF exhibited aggressive behaviour towards the auditors, and the firm provided inaccurate and misleading information.
The audit proved complex, taking considerably longer than anticipated. These issues led PwC to suspect that LCF might be involved in fraudulent activity. Under regulatory obligations, PwC was required to report these suspicions to the FCA promptly, but it failed to do so.
Despite PwC ultimately concluding that LCF’s 2016 accounts were accurate, FCA said the audit firm was still obligated to inform the regulator of its earlier concerns.
We've fined PwC for failing to report their belief that London Capital & Finance (LCF) might be involved in fraudulent activity.#FinancialRegulation #FinancialServiceshttps://t.co/w8HZE4BkSm
— Financial Conduct Authority (@TheFCA) August 16, 2024
LCF entered administration in January 2019 after the FCA ordered the withdrawal of misleading promotional material related to the sale of mini-bonds. Thousands of investors were misled by the firm’s failure to fully disclose the risks associated with the product. In connection to this, the FCA has previously fined and banned a former director of LCF. The Serious Fraud Office is currently conducting a criminal investigation into LCF’s collapse.
The FCA’s £15 million fine on PwC marks the first time the regulator has decided to penalise an audit firm.
“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 Financial Conduct Authority. “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.”
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