In a landmark case, the Financial Conduct Authority (FCA) has fined PricewaterhouseCoopers LLP (PwC) £15 million for not reporting suspected fraudulent activity involving London Capital & Finance plc (LCF). This unprecedented fine marks the first time the FCA has penalised an audit firm.
The 2016 audit of LCF presented significant challenges for PwC. Auditors were met with aggressive behaviour from a senior individual at LCF and were provided with inaccurate and misleading information, complicating the audit process. These factors, combined with the complex nature of the audit, led PwC to suspect that LCF might be involved in fraudulent activities. Despite these suspicions, PwC failed to alert the FCA as required.
PwC eventually concluded that LCF’s 2016 accounts were accurate. However, whether or not their suspicions remained, PwC was still legally obligated to report their concerns to the FCA—a responsibility they neglected. This failure deprived the FCA of potentially critical information that could have prompted earlier intervention.
LCF’s collapse in January 2019, following the FCA’s order to withdraw misleading promotional materials for mini-bonds, resulted in significant losses for thousands of investors who were not adequately informed of the product’s risks. The Serious Fraud Office continues to investigate the case criminally.
Therese Chambers, Joint Executive Director of Enforcement and Market Oversight at the FCA, emphasised the crucial role of auditors in maintaining market integrity. She stated, “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. 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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