Last week, the UK Financial Conduct Authority (FCA) fined PwC £15 million — the regulator's first penalty targeting an auditor. PwC was accused of failing to report concerns about potential fraudulent activity at its audit client, London Capital & Finance (LCF).
LCF collapsed in 2019 after being ordered to withdraw misleading promotional material for its mini-bonds, leading nearly 12,000 investors to lose a total of £237 million. The fine against PwC stemmed from the firm's 2016 audit of LCF. In the course of that audit, PwC encountered significant issues, including facing aggressive behavior from LCF's management and receiving misleading information. However, despite having suspicions of fraud, PwC signed off on LCF's financials. This violated its legal responsibility to report suspected fraud, the FCA argued.
Therese Chambers, the FCA's Joint Executive Director of Enforcement, emphasized the critical role auditors play in maintaining market integrity, stating that PwC's failure to act on red flags deprived the regulator of potentially vital information. "Auditors have a central role to play in keeping our markets clean," she said. "They have privileged access to information and they are required by law to report suspicions of fraud to the FCA."
The FCA noted that both the Serious Fraud Office and the Financial Services Compensation Scheme (FSCS) are involved in ongoing efforts related to the LCF scandal. Meanwhile, the FCA has itself faced much scrutiny regarding its regulation and supervision of LCF in the lead-up to its collapse.
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