The Financial Reporting Council (FRC) has imposed a financial sanction of £4.5m (discounted to £2.9m for mitigating circumstance, admissions, and early disposal) over its audit failures of Wyeland Bank.
The FRC also issued a ‘severe reprimand’ and a declaration that the FY2019 Audit report signed by PwC did not satisfy the Relevant Requirements.
The FRC also sanctioned Jonathan Hinchliffe. He must pay £33,412 and he also received a severe reprimand.
The Big 4 firm must pay Executive Council’s costs for the investigation.
PwC and Hinchliffe admitted breaches of Relevant Requirements in relation to six areas of the FY2019 Audit: risk assessment, auditing of the Bank’s compliance with laws and regulations, auditing of the Bank’s related party transactions, auditing of the Bank’s assessment of going concern, auditing of the Bank’s loans and advances, and auditing of the bank’s provision for expected credit loss.
The breaches primarily stemmed from a single common cause: the failure of the audit team to properly understand the Bank’s lending and adequately consider the risks posed by its actual and potential exposure to related parties in the GFG Alliance. The audit team also failed to properly examine concerns raised by the Bank’s regulator, the Prudential Regulation Authority (“PRA”) in that regard. In addition, they failed to exercise appropriate professional scepticism in relation to several aspects of the audit.
The FY19 audit opinion was signed in July 2019. After the Audit, in September 2019 the PRA required the Bank to limit its exposures to related parties due to concerns that the Bank had an unacceptable concentration of risk. By March 2020 the Bank had stopped entering new credit transactions and commenced a wind down of its business. In March 2021 the PRA required the Bank to repay its depositors, which it has done. It is not alleged that the breaches by PwC and Hinchliffe caused or contributed to the closure of the Bank.
