The Monetary Conduct Authority (FCA) has fined an audit agency for the primary time, over PwC’s failure to flag fraudulent exercise at collapsed mini-bond supplier London Capital & Finance (LCF).
The Metropolis watchdog mentioned that it has issued the ‘massive 4’ agency with a £15m penalty because it didn’t act on “crimson flags”.
LCF collapsed in January 2019 owing greater than £230m to greater than 11,500 bondholders. The agency was discovered to have misled traders in regards to the dangers concerned.
The FCA mentioned that PwC encountered “vital points” throughout its 2016 audit of LCF.
Learn extra: Who must be chargeable for investor losses at FCA-authorised corporations?
A senior particular person at LCF acted aggressively in direction of auditors and the agency offered PwC with inaccurate and deceptive info.
This led PwC to suspect that LCF is perhaps concerned in fraudulent exercise, the FCA mentioned, including that PwC was obligation sure to report these suspicions as quickly as potential however failed to take action.
PwC finally happy itself that LCF’s 2016 accounts have been correct. Whether or not or not its suspicions remained, the FCA mentioned it nonetheless had an obligation to report its earlier considerations.
Learn extra: London Capital & Finance collectors to recoup much less funds than anticipated
“Auditors have a central function to play in holding our markets clear,” mentioned Therese Chambers, joint govt director of enforcement and market oversight on the FCA.
“They’ve privileged entry to info and they’re required by regulation to report suspicions of fraud to the FCA.
“There have been quite a lot of crimson flags that led PwC to suspect fraud. They need to have acted on them instantly. Their failure to take action disadvantaged the FCA of doubtless important info.”
The FCA has beforehand censured LCF for its unfair and deceptive monetary promotions of mini-bonds and has fined and banned a former LCF director beneath the identical cost.
The Severe Fraud Workplace has an open felony investigation into the failure of LCF.
The Monetary Companies Compensation Scheme has paid out £57.6m to eligible bondholders who misplaced cash when LCF collapsed. The federal government has additionally paid £115m by a one-off scheme which is now closed. The compensation scheme has been described as an distinctive case by authorized specialists, as it’s extremely uncommon for the Treasury to step in and repay traders.