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The UK’s financial regulator has hit PwC with a record £15mn fine for failing to alert the watchdog to suspected fraudulent activity at London Capital & Finance, the now-defunct investment group at the centre of one of the country’s worst retail savings scandals in recent years.
The Financial Conduct Authority said on Friday that it had imposed a £15mn penalty on the Big Four accounting firm after it failed to report to the regulator its belief that LCF might be involved in fraudulent activity.
It is the first time the FCA has fined an audit firm and comes after PwC was also handed a £4.9mn penalty in May by the accounting watchdog for failures in its 2016 audit of LCF.
The new fine is the largest regulatory penalty imposed against PwC in the UK, and significantly higher than the previous record fine of £6.5mn it received from the Financial Reporting Council in 2018 for failings in its audit of retailer BHS.
Almost 12,000 individual investors were promised high returns through “minibonds” offered by LCF, but lost a total of £237mn when it collapsed in 2019. The FCA, which regulated the company but not its products, was itself admonished in a subsequent independent review for failing to “effectively supervise and regulate” LCF.
The regulator said on Friday that PwC encountered “significant issues” throughout its audit of LCF in 2016, including a “senior individual” at the investment firm acting aggressively towards auditors and the group providing inaccurate and misleading information.
It added that LCF’s actions, and PwC’s own audit work, led the accounting firm to suspect that LCF might be involved in fraudulent activity. However, the audit firm failed to report these suspicions to the FCA as soon as possible, which the regulator said it was duty-bound to do. PwC ultimately satisfied itself that LCF’s 2016 accounts were accurate.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: “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.”
The High Court was told in February that LCF ran a “Ponzi scheme” in which money raised was spent on diamond earrings, horses, shotguns and membership at Annabel’s nightclub in London.
Meanwhile, LCF’s former chief executive, Michael Andrew Thomson, was last year sentenced to a 10-month suspended jail term for breaching a restraint order placed on his bank account relating to a Serious Fraud Office investigation, which is ongoing.
PwC said: “We have reached a settlement with the FCA to resolve an unintentional reporting breach.”
The FCA found that PwC’s breach was “not reckless or deliberate” and that the firm was “not involved in the misconduct of LCF”.