Massive Fines Levied on Big 4 Auditors Over London Capital & Finance Failures

The Financial Reporting Council (FRC) has levied severe sanctions against three major audit firms and several auditors over failures in their audits of London Capital & Finance plc (LCF), the collapsed bond issuance firm that owes over £237 million to thousands of investors.

PricewaterhouseCoopers (PwC), Ernst & Young (EY), and the smaller Oliver Clive & Co were all found to have committed serious breaches in their respective audits of LCF's financial statements from 2015 to 2017, prior to LCF's administration in 2019.

PwC was hit with the largest fine of £7 million (reduced from £10 million for admissions and early disposal) over its audit for the 2016 financial year. The FRC found PwC failed to understand LCF's business properly, did not exercise sufficient skepticism regarding fraud risks, and made mistakes auditing areas like loan debtors and revenue.

EY was also fined £7 million (reduced from £10 million after discounts) relating to similar failings in its audit of LCF's 2017 financial statements. Both PwC and EY were severely reprimanded and their audit reports declared as failing to meet relevant auditing requirements.

Smaller firm Oliver Clive & Co was fined £42,000 over numerous breaches in its audit of LCF for the short period of April 2015, when LCF had just reregistered as a public company. Its auditor Emma Benjamin was personally fined £14,000.

The FRC said all the audit firms knew LCF was an expanding business selling unregulated financial products to retail investors, making the audit failures more serious given potential investor reliance on the audits.

In separate statements, PwC and EY said they regretted their audit failings and had implemented measures to improve audit quality. No findings of dishonesty were made against any of the auditors.

The massive fines reflect the FRC's efforts to crack down on negligent audits, especially those involving companies that dealt with retail investors. The sanctions are among the largest ever imposed by the regulator.

The LCF case is also being criminally investigated by the Serious Fraud Office over potential fraud relating to the bond sales. No charges have been brought yet.

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