The Financial Reporting Council’s executive counsel has issued fines for PwC, EY, and Oliver Clive & Co (OCC), over failures in the audits of London Capital & Finance plc (LCF).
PwC has agreed to pay £4.9m and EY £4.4m, for their failures of the audit of the minibond firm. Both also received a severe reprimand. PwC audit engagement partner Jessica Miller, was given a £105,000 fine. EY’s Neil Parker was fined £47,250.
Meanwhile, OCC received a financial sanction of £42,000 along with a severe reprimand.
In all some £9.5m in fines were dished out.
Jamie Symington, Deputy Executive Counsel, said in relation to all three audits: “In each of these three audits the auditors 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.”
The background
LCF was formerly known as London Capital & Finance Limited and re-registered as a Public Limited Company on 11 November 2015, changing its name accordingly. It was not listed on any stock exchange. The company’s business involved issuing private bonds to retail investors and lending the proceeds to commercial clients. In December 2018, the Financial Conduct Authority (“FCA”) imposed restrictions on LCF’s ability to issue or approve further financial promotions. The FCA’s intervention was prompted by serious concerns regarding LCF’s conduct. LCF went into administration on 30 January 2019, owing about £237m to 11,625 individual bondholders. The Serious Fraud Office has opened a criminal investigation in relation to suspicions that actions relating to the sale of LCF’s bonds may have been fraudulent, but this question has not been decided by any court to date.
LCF went into administration just under a year after the 2017 Audit report had been signed (in February 2018). It was in that period that a significant proportion of the unpaid bonds were issued. While it is not asserted that any of the auditors would necessarily have detected the underlying issues with the company if the breaches had not occurred, all failed to provide the reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error which is the objective of any statutory audit.
The sanctions imposed take account of a number of factors, including the seriousness of the breaches and the financial strength of the auditor, as indicated by the turnover of the firm.
