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 ‘large 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 concerning the dangers concerned.
The FCA mentioned that PwC encountered “important points” throughout its 2016 audit of LCF.
Learn extra: Who needs to be responsible for investor losses at FCA-authorised corporations?
A senior particular person at LCF acted aggressively in direction of auditors and the agency supplied PwC with inaccurate and deceptive data.
This led PwC to suspect that LCF may be concerned in fraudulent exercise, the FCA mentioned, including that PwC was obligation sure to report these suspicions as quickly as doable however failed to take action.
PwC finally glad 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 data and they’re required by legislation to report suspicions of fraud to the FCA.
“There have been plenty 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 probably very important data.”
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 below the identical cost.
The Severe Fraud Workplace has an open prison 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 way of 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.
