PwC Fined £15m by Financial Conduct Regulator in First-Ever Penalty on Audit Firm
In a landmark decision, the Financial Conduct Authority (FCA) has imposed a £15m fine on accounting giant PwC, making it the first time a financial penalty has been levied on an audit firm by the regulatory body. PwC, one of the “big four” accounting firms, was found to have overlooked several audit red flags and neglected to promptly report suspected fraud at a failed financial services firm.
The firm in question, London Capital & Finance (LCF), had enlisted PwC as its auditor and tasked them with verifying its company accounts. However, during the audit process, PwC encountered numerous issues, including receiving inaccurate and misleading information from LCF. Additionally, a senior employee of LCF reportedly acted aggressively towards PwC auditors.
Despite their suspicions of fraud, PwC signed off on LCF’s accounts and failed to report their concerns to the FCA as required by law. Even after being satisfied with the accuracy of LCF’s 2016 accounts, PwC still had a duty to report previous concerns to the regulatory body. However, they failed to do so, depriving the FCA of potentially vital information.
The FCA highlighted the severity of PwC’s actions, stating that they should have “acted immediately” instead of disregarding their suspicions. According to the FCA, PwC’s failure to report the suspected fraud not only hindered their investigation but also put thousands of investors at risk.
LCF has been described as a Ponzi scheme by its former investors and has faced criticism from the FCA for its misleading promotion of a financial product called minibonds. The company entered administration in 2019 after the FCA ordered it to remove these promotions. The FCA also stated that thousands of investors were misled as they were not fully informed of the risks involved with the product. The collapse of LCF has sparked a criminal investigation by the Serious Fraud Office.
In response to the fine, PwC stated, “We have reached a settlement with the FCA to resolve an unintentional reporting breach.” The accounting firm has also agreed to implement measures to improve their reporting processes to prevent similar incidents from occurring in the future.
This ruling by the FCA serves as a warning to audit firms to take their responsibilities seriously and report any suspicions of fraud immediately. It also highlights the importance of maintaining transparency and providing accurate information to investors.
