PwC & Jonathan Hinchliffe Face Sanctions Over Wyelands Bank Audit Failures

Key Takeaways

• Sanctions Issued: PwC and Jonathan Hinchliffe face financial penalties and a public reprimand for failing to adequately assess the risks in Wyelands Bank’s 2019 audit.
• PwC’s Penalty: PwC’s initial £4.5 million fine is reduced to £2.89 million after considering cooperation and admissions.
• Hinchliffe’s Penalty: Jonathan Hinchliffe’s £55,000 fine is lowered to £33,412 after similar discounts.
• Audit Failures: PwC and Hinchliffe failed to properly assess the risks tied to Wyelands Bank’s heavy reliance on the Gupta Family Group Alliance, leading to breaches in several key audit areas.
• Further Actions: PwC has been ordered to implement corrective measures and cover the costs of the FRC’s investigation.

Deep Dive

For those unfamiliar with Wyelands Bank, it has been around since 1980, but its fate took a significant turn when it was acquired in 2016 by a new owner. This acquisition placed the bank under the umbrella of the Gupta Family Group Alliance (GFG Alliance), a conglomerate with diverse interests, including steel, aluminum, and renewable energy. By 2019, the bank had shifted its primary focus to trade finance, with a staggering 84% of its business tied to GFG Alliance-related entities.

This heavy reliance on a single group of related parties created a concentrated risk profile that should have been a clear warning for any auditor. The potential for conflicts of interest, financial exposure, and regulatory scrutiny was high, and it’s precisely the kind of situation where a thorough, skeptical audit is crucial. Yet, PwC and Jonathan Hinchliffe, the lead auditor, failed to fully grasp the risks posed by Wyelands Bank’s ties to the GFG Alliance. This oversight would later become a central issue in the FRC's investigation.

As a result of these failures, the Financial Reporting Council (FRC) has now issued sanctions against PwC and Mr. Hinchliffe. PwC faces a financial penalty of £4.5 million, which has been reduced to £2,885,625 following the firm’s cooperation with the investigation and early admissions. Mr. Hinchliffe’s initial £55,000 fine has similarly been reduced to £33,412. Both will receive a Severe Reprimand, which will be publicly disclosed.

Furthermore, the FRC declared that the FY2019 audit report, which was signed off by PwC, did not meet the required auditing standards. As part of the settlement, PwC is also required to implement corrective measures to prevent similar breaches in the future, while covering the costs of the investigation.

Not Seeing the Full Picture

PwC and Mr. Hinchliffe admitted to significant breaches in several critical areas of the FY2019 audit, including risk assessment, compliance with laws and regulations, related-party transactions, and evaluating the bank’s going concern. The core issue? A failure to understand the nature of Wyelands Bank’s business and its exposure to related parties in the GFG Alliance.

Despite warnings from the Prudential Regulation Authority (PRA) about the bank’s concentration of risk, PwC’s audit team missed the mark on multiple fronts. They didn’t sufficiently assess the risks posed by the bank’s relationships with the GFG Alliance, nor did they fully consider the regulator’s concerns. In short, they didn’t exercise the level of professional skepticism necessary for a thorough and effective audit.

A Tangential Impact

While the audit failures didn’t directly cause the bank’s closure, they contributed to the ongoing concerns about the bank’s risk management. After the audit, the PRA stepped in with stricter oversight, requiring the bank to limit its related-party exposure. By early 2020, the bank stopped taking on new credit transactions and began winding down its operations. By 2021, Wyelands Bank had repaid its depositors. However, the consequences of PwC and Mr. Hinchliffe’s oversight remain part of the broader story.

Claudia Mortimore, Deputy Executive Counsel at the FRC, stressed that the breaches highlight a crucial lesson for auditors.

"The audit breaches in this case highlight the importance for auditors to have a full understanding of the audited entity and its business," she said. "This is particularly important where there has been a change of ownership and a change in the nature and scale of activities. In this audit, the risks around the Bank’s membership of and involvement with the GFG Alliance were not properly recognized and considered, despite clear warnings to the Bank from the PRA."

Auditors need to be more than just compliance checkers. They must truly understand the business and its evolving risks, especially when major changes like ownership shifts take place. The stakes in this case were high, with retail depositors at risk — a critical reminder that audit failures can affect more than just the bottom line.

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