On 16 August 2024, the Financial Conduct CA fined PricewaterhouseCoopers LLP (PwC) for failing to report to the regulator their belief that London Capital & Finance plc (LFC) might be involved in fraudulent activity. This is the first time the UK regulator has fined an audit firm.Extracts from the Final Notice to PricewaterhouseCoopers LLP:
▪ “The Authority recognises that PwC was not involved in the misconduct of LCF and, as an auditor, it was not responsible for seeking out or fully investigating suspected fraud. Nevertheless, auditors of regulated firms, by the nature of their work, have a unique insight into how those firms are run and managed. Auditors therefore play an important role in alerting the Authority to issues that may be of material significance to it, as required by the Reporting Regulations. Speed of reporting is vitally important given the potential consequences of consumer harm, financial crime, or other risks to the Authority’s objectives.” (Sect. 2.8)
▪ “The LCF Audit encountered significant risk management issues and required a large amount of partner time considering various options, including whether LCF might be involved in fraudulent activity. It took 3 times longer to complete the audit (6 weeks in total) due to significant issues which fell “at the extreme end of the scale”, including:
(i) LCF’s failure to co-operate with PwC, which gave rise to serious difficulties in obtaining even basic information from LCF;
(ii) aggressive behaviour from a senior individual at LCF with complete control of its day-to-day operations; and
(iii) substantial concerns about the veracity and reliability of the 8 information provided by LCF and its involvement in potential fraud.
Whilst these kinds of issues are not uncommon in an audit, they collectively gave rise to serious concerns and resulted in PwC having a reasonable belief that LCF might be involved in potential fraud.” (Sect. 4.10)
▪ “In the circumstances, PwC should have promptly reported its reasonable beliefs to the Authority (as well as the facts and matters giving rise thereto). These provisions do not require an auditor to investigate fully whether their suspicions are conclusively established, nor to wait for an extensive period to see if their suspicions are allayed before making a report (although in any event the Audit Team waited at least 11 days before resolving to make an internal SAR). On the contrary, where the matter giving rise to the duty to report casts doubt on the integrity of those charged with governance or their competence to conduct the business of a regulated entity, the auditor is to make the report to the regulator as soon as practicable (see Annex B and, in particular, paragraph 14 of ISA (UK) 250B therein).” (Sect. 5.4)