Enforcement watch: FCA fines PwC £15m

The FCA has fined PricewaterhouseCoopers LLP (PwC) for failing to report suspicions concerning potential fraudulent activity which arose during an audit of London Capital & Finance plc (LCF). 

Background

LCF was a credit broker which raised finance from the general public by issuing minibonds. LCF went into administration in January 2019 following supervisory intervention by the FCA in December 2018 requiring LCF to withdraw promotional material on the basis it was misleading, not fair and not clear. 

During an audit of LCF between 8 September and 10 October 2016 (the Relevant Period), PwC encountered a number of difficulties including:

• the failure by LCF to provide basic information to PwC; and
• concerns in relation to the veracity and reliability of information provided to PwC.

As the audit progressed, the audit team sought advice from the inhouse legal team, risk management and others internally at various stages, and an internal suspicious activity report was made on 20 September 2016.  Following certain audit test adjustments and internal checks, including an independent auditor's review, the audit was signed off by 10 October 2016.   

Findings

Auditors are required to report certain matters to the FCA, including suspicions of fraud. This is the first fine of an audit firm. It follows a recent censure of another auditor for a failure to prepare client asset reports in accordance with relevant requirements. Taken together, these decisions suggest heightened regulatory scrutiny of the role of auditors in relation to audits of regulated firms and the need for auditors to have a good working knowledge of regulatory requirements.

In this decision and accompanying press release, the FCA sought to highlight: (i) the important role of auditors in alerting the regulator of issues which trigger a reporting obligation due to their unique insight into how regulated firms are run and managed; and (ii) the need for speed of reporting. In the FCA's view, PwC should have reported its suspicions to the FCA at any point during the Relevant Period, emphasising that it was not necessary to investigate fully to a point where the suspicions are conclusively established before making a report.