Accountancy firms PwC and EY have been given fines totalling £9.3m for failures in relation to their auditing of London Capital & Finance (LCF).

The penalties follow an investigation by the Financial Reporting Council (FRC) into how the pair audited the accounts of LCF in 2016 and 2017, before LCF entered administration in 2019.

Another auditor, Oliver Clive & Co, has also been fined £42,000 in relation to LCF’s 2015 audit.

LCF marketed minibonds to retail investors through financial promotions which, according to an investigation by the Financial Conduct Authority into the collapsed firm, presented a “misleading picture” of the bonds, making them appear a far more attractive investment than they were.

When LCF went into administration, it owed an estimated £237m to more than 11,600 individual bondholders.

The FRC subsequently carried out an investigation into how the accounts of LCF had been audited in the time leading up to its demise.

PwC audited the full year’s financial statements to April 2016, a year that had seen LCF issue £9.2m in bonds. The firm, along with one of its employees, has now admitted eight breaches in relation to identifying the risk of material misstatement as well as the exercise of professional scepticism regarding the risk of fraud.

EY audited LCF’s financial statements for the 12 months to April 2017, a year in which LCF issued a further £53.4m in bonds. The FRC’s investigation again found “significant failure” to gain a proper understanding of LCF’s business and internal controls, with EY and an individual working at the firm admitting six breaches.

Oliver Clive & Co, which acted as LCF’s accountants and prepared the financial statements for one month in April 2015, also admitted breaches in relation to its auditing of LCF’s accounts. The FRC stated that while LCF was a small company at that stage with a £1.25m loan book and just 36 bondholders, these breaches were still “serious”.

Deputy executive counsel at the FRC, Jamie Symington, said all three auditors had “failed to identify and assess the risks of material misstatement” through understanding LCF’s business.

“These breaches are made considerably more serious by the fact that all of the auditors knew they were auditing an expanding business which was engaged in selling unregulated financial products to retail investors, and that potential investors might place reliance on the clean audit opinions,” Symington added.

All three accountancy firms co-operated with the FRC during the investigation, which the regulator said had resulted in reduced fines.

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