PwC fined £15m for fraud at London Capital & Finance

PWC has been fined £15m for failing to warn about alleged fraud at London Capital & Finance (LCF).

The auditor has become the first accounting firm to be sanctioned by the city regulator.

The Financial Conduct Authority’s investigation found that during PWC’s work on the minibond company’s 2016 accounts, its audit team found several “red flags” but failed to alert the regulator.

Warning signs included a senior LCF official “acting aggressively” toward auditors and the firm providing PwC with inaccurate and misleading information.

The accounting giant also called the audit “very complex” and said it took much longer than expected to complete.

Following this, PwC suspected fraud within LCF but did not report it to the watchdog and closed the accounts.

A spokesman for the watchdog said: “PwC had an obligation to report these suspicions to the FCA as soon as possible but failed to do so.”

Therese Chambers, the City regulator’s director of compliance, added: “They should have acted immediately. Their inaction deprived the FCA of potentially vital information.” LCF went bust in 2019, owing around £237m to more than 11,600 investors who had bought its toxic mini-bonds. The collapse would go on to become one of Britain’s biggest investment scandals as many of the investors were elderly and had invested their life savings in the firm.

Much of the money went into speculative property developments, a helicopter purchased for a company controlled by LCF and equestrian events.

Administrators’ attempts to recover the funds continue, while more than £170m has been paid to bondholders through government compensation schemes.

A PwC spokesperson said: “We have reached an agreement with the FCA to resolve an inadvertent reporting breach.”

In May, the Financial Reporting Council fined PwC and EY for failing to properly identify and understand LCF’s business and its internal controls. The audit watchdog imposed penalties of £4.9 million and £4.4 million respectively.

Meanwhile, the Serious Fraud Office has opened a criminal investigation into the failure of LCF, whose former boss Michael ‘Andy’ Thomson was jailed for 10 months in 2023 after breaching a restraining order placed on his bank account.