PricewaterhouseCoopers (PwC) and Ernst & Young (EY), two of the largest accounting firms globally, have been fined a total of £9.3 million (or $12.648 million) for failing in their duties while auditing the accounts of London Capital & Finance (LC&F), a collapsed mini-bond firm.
The Financial Reporting Council (FRC) investigated the auditing failures over almost four years. The regulators found that both PwC and EY did not fully understand LC&F’s business and internal controls, which led to a failure to detect potential misstatements in the company’s accounts.
LC&F collapsed in 2019, leaving 11,600 investors who had invested about £237m in its mini-bonds at a loss. The company promised high returns but invested only a small portion of the funds in safe investments, diverting the rest into speculative ventures.
PwC, which audited LC&F in 2016, admitted to eight breaches, including a failure to comprehend the nature of LC&F’s business and the risks involved. EY, which took over auditing duties in 2017, admitted to six breaches for similar failures.
Both firms received severe reprimands and hefty fines, with PwC fined £4.9m and EY fined £4.4m. These fines represent the largest-ever issued against EY by the FRC and the third largest for PwC.
A smaller auditor, Oliver Clive & Co, was fined £42,000 for its role in auditing LC&F’s accounts in 2015.
In response, PwC acknowledged the shortcomings in its work and highlighted significant changes made to its processes and policies. EY also apologized for falling short of its standards and committed to learning from its mistakes.
The investigation into the collapse of LC&F has prompted scrutiny of regulatory oversight and led to a criminal investigation by the Serious Fraud Office.
