Dubai: The global audit firm PwC was served with a ‘record’ fine of 15 million pounds by a UK financial regulator for failure to report potential fraud at a London firm, which then went under costing clients around 240 million pounds.
It relates to work PwC did for London Capital & Finance.
'Auditors have a central role to play in keeping our markets clean,” said UK’s Financial Conduct Authority’s Therese Chambers, Joint Executive Director of Enforcement and Market Oversight.
“They have privileged access to information and they are required by law to report suspicions of fraud to the FCA.”
This is also a milestone of sorts, being the first time the FCA has fined an audit firm.
In the statement, FCA notes that 'There were a number of red flags that led PwC to suspect fraud. They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.
PwC was earlier fined 4.9 million pounds by the UK Financial Reporting Authority for its work with London Capital & Finance.
According to a UAE based financial industry source, regulators are taking an ‘extremely dim view of audit firms coming up short on their gate-keeping roles’.
The issue involves a 2016 audit work done on behalf of London Capital & Finance.
Where did PwC UK get it wrong
According to the UK regulator, ‘A senior individual at LCF acted aggressively towards auditors, and the firm provided PwC with inaccurate and misleading information.
“PwC found the audit very complex, and it took considerably longer to complete than anticipated. LCF’s actions, and PwC’s own work on the audit, led PwC to suspect that LCF might be involved in fraudulent activity.
PwC was duty bound to report those suspicions to the FCA as soon as possible, but they failed to do so.”
Then, in 2019, London Capital & Finance went into administration, which meant 11,000 investors so lost out on funds they had parked through the company’s mini-bonds.
“PwC eventually satisfied itself that LCF's 2016 accounts were accurate,” the regulator adds in the statement. “Whether or not its suspicions remained, it still had an obligation to report its previous concerns to the FCA.”
UK media reports quote PwC saying it had reached a settlement with FCA to resolve the matter.
Regulators worldwide have been taking a zero-tolerance approach on audit firms, for serial failures in reporting omissions made by clients in their financial reporting. In the UAE, the DFSA and ADGM have in the recent past hit firms with sizeable penalties for being less than transparent in their work.
Zero tolerance
In recent weeks, UAE investment company Shuaa issued a statement that it was not absolving PwC from any liability related to their work in 2023. Another DFM-listed entity, Drake & Scull International, in May, filed a lawsuit in a Dubai court against the firm for the handling of its audit.
In 2023, audit firms in the UK were fined 40 million pounds by the Financial Reporting Council, while in the US, ‘eight out of 10 largest fines’ imposed on audit firms happened in the last 4 years.
