The big four accountants, PwC and EY, were yesterday fined more than £9m in total for their botched audits of a collapsed “mini-bond” company.
London Capital & Finance (LCF) raised £237 million from 11,625 savers (many of them retirees and elderly) before going bankrupt in early 2019.
Bondholders—lured by the promise of juicy returns of up to 8 percent annually—were told their money would be loaned to companies that needed it to grow.
But instead, cash was funneled into risky ventures and savers suffered huge losses when LCF collapsed.
Investors are likely to have been reassured by audits giving them a clean bill of health, according to the Financial Reporting Council (FRC), the accounting watchdog.
Collapse: London Capital & Finance raised £237m from 11,625 savers (many of them retirees and elderly) before going bankrupt in early 2019.
Following an FRC investigation, accounting firms admitted a series of breaches of the rules.
PwC and EY, which audited LCF in 2016 and 2017 respectively, were fined £4.9m and £4.4m following an investigation by the watchdog.
Oliver Clive & Co (OCC), a smaller firm that audited LCF for a month in 2015, was fined £42,000.
In each case, the accountants “failed to identify and assess the risks of material misstatement in understanding LCF’s business,” said Jamie Symington, deputy executive counsel at the FRC.
“These violations are made considerably more serious by the fact that all of the auditors knew that they were auditing a growing company that was engaged in selling unregulated financial products to retail investors, and that potential investors could rely on the clean opinions of the auditor. audit.”
The FRC also fined PwC partner Jessica Miller £105,000, while EY’s Neil Parker was fined £47,250.
OCC’s Emma Benjamin was fined £14,000. An EY spokesperson said her audit “did not meet our standards and for that we apologize.” She said he was committed to learning from her mistakes.
A PwC spokesperson said: “We regret that our work in 2016 did not meet the standards expected and expected of ourselves.”
In the eight years since this work was performed, we have made significant changes to our audit methodology, policies and guidelines.’
The OCC could not be reached for comment.
Earlier this year, the Financial Conduct Authority (FCA) banned former LCF director Floris Jakobus Huisamen and fined him £31,800 for “recklessly” approving misleading financial promotions.
The reputation of the FCA – led in the run-up to the collapse by Andrew Bailey, now governor of the Bank of England – was also tarnished by the episode. It was criticized in an independent review in 2020.
The Serious Fraud Office is investigating the LCF case.
