PwC Fined £15 Million by FCA for Failing to Report Suspected Fraud at Collapsed Firm LC&F

Accounting giant PwC has been handed a £15 million fine by the UK’s Financial Conduct Authority (FCA) for failing to report suspected fraud at the now-collapsed firm London Capital & Finance (LC&F). This marks the first time the FCA has imposed a financial penalty on an audit firm.

The FCA’s investigation revealed that PwC encountered "significant issues" during its 2016 audit of LC&F. According to the regulator, PwC faced aggression from senior individuals at LC&F and was provided with misleading information by the firm. Despite harboring suspicions that LC&F was involved in fraudulent activities, PwC ultimately signed off on the company’s accounts.

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, pointed to several "red flags" that should have prompted PwC to take immediate action. "They should have acted on them immediately," Chambers stated, emphasizing that PwC should have reported these concerns to the FCA. "Their failure to do so deprived the FCA of potentially vital information," she added.

The FCA itself has faced criticism for its failure to effectively supervise LC&F, which has been described by former investors as a Ponzi scheme. The financial services firm collapsed in 2019, resulting in the loss of £237 million invested in illiquid securities by 11,000 customers.

In response to the fine, PwC stated: "We have reached a settlement with the FCA to resolve an unintentional reporting breach." The FCA acknowledged that PwC’s breach was not "reckless or deliberate," but nonetheless, the failure to report the suspected fraud has led to significant consequences for the accounting firm.