According to the FCA, PwC had encountered a series of issues during the 2016 audit of LCF, including a senior member of the company acting aggressively towards the audit, as well as the company providing inaccurate and misleading information to auditors.
The actions of LCF and its accounts led PwC to suspect fraudulent activity, which it was dutybound to report as soon as possible.
After PwC found LCF’s accounts accurate, the company still failed to report its suspicions of fraudulent activity, — whether the auditors’ suspicions remained or not, they still, had an obligation to report them.
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LCF went into administration in 2019, after the firm was ordered by the FCA to withdraw misleading promotional material for the sale of mini-bonds, after investors were not given the full picture on the product risks.
The Financial Services Compensation Scheme has since paid out £57.6m to eligible bondholders who lost money after the collapse of LCF, while the government also issued £115m in a one-off scheme to those eligible.
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.”
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