PwC hit by £15m fine over London Capital & Finance fraud failings

PWC has been fined £15m for failing to warn of suspected fraud at London Capital & Finance (LCF).

The auditor has become the first accountancy firm to be penalised by the City regulator.

The Financial Conduct Authority’s investigation found that during PWC’s work on the minibond company’s 2016 accounts, its audit team found several ‘red flags’ – but failed to alert the regulator.

The warning signs included a senior individual at LCF who ‘acted aggressively’ towards the auditors and the firm providing PwC with inaccurate and misleading information.

The accountancy giant also found the audit ‘very complex’, claiming it took much longer than expected to complete.

Hit hard: PWC has become the first accountancy firm to be penalised by the City regulator

Following this, PwC suspected fraud within LCF but did not report it to the watchdog and signed off the accounts.

A spokesman for the watchdog said: ‘PwC was duty bound to report those suspicions to the FCA as soon as possible, but they failed to do so.’

Therese Chambers, director of enforcement at the City regulator, added: ‘They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.’ LCF collapsed into administration in 2019, owing around £237m to more than 11,600 investors who had bought its toxic minibonds. The collapse was to become one of Britain’s biggest investment scandals as many of the investors were elderly and had put their life savings into the company.

Much of the money went into speculative property developments, a helicopter bought for a firm controlled by LCF and equestrian events.

Administrators’ attempts to recover the funds are ongoing, while more than £170m was paid out to bondholders through government compensation schemes.

A spokesman for PwC said: ‘We have reached a settlement with the FCA to resolve an unintentional reporting breach.’

In May, the Financial Reporting Council fined PwC and EY for failing to identify and adequately understand LCF’s business and its internal controls. The audit watchdog handed out penalties of £4.9m and £4.4m respectively.

Meanwhile, the Serious Fraud Office has an open criminal investigation into the failure of LCF, whose former boss Michael ‘Andy’ Thomson was jailed for 10 months in 2023 after breaching a restraint order imposed on his bank account.

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