The UK’s financial regulator has imposed a record £15 million fine on PwC for failing to alert authorities to suspected fraudulent activity at London Capital & Finance (LCF), an investment group at the center of a major retail savings scandal. The Financial Conduct Authority (FCA) announced on Friday that it had penalized the Big Four accounting firm after it did not report concerns that LCF might be involved in fraud.
This marks the first time the FCA has fined an audit firm and follows a separate £4.9 million fine issued to PwC in May by the accounting watchdog for shortcomings in its 2016 audit of LCF.
The new fine is the largest regulatory penalty ever levied against PwC in the UK, surpassing the previous record of £6.5 million imposed by the Financial Reporting Council in 2018 for audit failures related to retailer BHS.
Nearly 12,000 individual investors lost a combined £237 million when LCF collapsed in 2019 after being promised high returns through “minibonds.” The FCA, which regulated LCF but not its products, was later criticized in an independent review for failing to effectively supervise and regulate the company.
The FCA reported on Friday that PwC encountered numerous challenges during its 2016 audit of LCF, including a “senior individual” at the investment firm behaving aggressively towards auditors and the firm providing inaccurate and misleading information.
The regulator added that LCF’s actions, combined with PwC’s audit findings, led the accounting firm to suspect fraud, but PwC failed to report these suspicions to the FCA promptly, as required by law. Despite these concerns, PwC ultimately concluded that LCF’s 2016 accounts were accurate.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, emphasized the critical role of auditors in maintaining market integrity, noting that PwC should have acted on the red flags immediately. She stated that PwC’s failure to do so deprived the FCA of potentially crucial information.
In February, the High Court heard that LCF operated a “Ponzi scheme,” with funds spent on luxury items such as diamond earrings, horses, shotguns, and a membership at Annabel’s nightclub in London.
LCF’s former chief executive, Michael Andrew Thomson, was sentenced last year to a 10-month suspended jail term for violating a restraint order on his bank account related to an ongoing Serious Fraud Office investigation.
PwC responded, stating: “We have reached a settlement with the FCA to resolve an unintentional reporting breach.” The FCA noted that PwC’s breach was “not reckless or deliberate” and that the firm was not involved in LCF’s misconduct.