The UK’s Financial Reporting Council (FRC) said on 7 May it had imposed fines and other sanctions on three audit firms totalling over £9m for their audits of mini-bond investment firm London Capital & Finance (LCF).
PWC was fined £4.9m and EY had to pay a penalty of £4.4m for falling below expected standards while overseeing LCF’s accounts in 2016 and 2017.
The third, smaller firm, Oliver Clive & Co, got a £42,000 pound fine for an earlier audit of LCF in 2015.
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 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.
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.”
To read the full statement, click here.
