The Financial Conduct Authority (FCA) has handed a £15m fine to PwC for failing to report to the regulator its belief that London Capital & Finance plc (LCF) might be involved in fraudulent activity.

The action marks the first time the FCA has fined an audit firm.

PwC encountered significant issues throughout its 2016 audit of LCF. The FCA has suggested a senior individual at LCF “acted aggressively” towards auditors, and the firm provided PwC with inaccurate and misleading information.

PwC found the audit very complex, and it took considerably longer to complete than anticipated.

According to the regulator, LCF’s actions, and PwC’s own work on the audit, led PwC to suspect that LCF might be involved in fraudulent activity. PwC was duty bound to report these suspicions to the FCA as soon as possible, but it failed to do so.

Joint executive director of enforcement and market oversight at the FCA, Therese Chambers, 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. It should have acted on them immediately. Its failure to do so deprived the FCA of potentially vital information.”

PwC eventually satisfied itself that LCF’s 2016 accounts were accurate. LCF went into administration in January 2019 after the FCA ordered the firm to withdraw misleading promotional material for the sale of mini-bonds. The regulator has estimated that “thousands of investors” were misled because they were not given the full picture about the risks of the product.

The Serious Fraud Office has an open criminal investigation into the failure of LCF.

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