FCA fines auditor for failing to flag fraud suspicions

The Financial Conduct Authority has fined PwC £15 million for failing to report its reasonable belief that London Capital & Finance (LCF) might have been involved in fraudulent activity.

Auditors of regulated firms have a duty to report certain matters to the FCA. This includes raising suspicions of fraud. In this case PwC suspected fraud at LCF but eventually satisfied itself that the accounts for the relevant period were accurate. Even so, the FCA has concluded that it should have still reported its previous concerns.

This is the first time the FCA has fined an audit firm. The action follows a day after the FCA’s first public censure of an auditor (see: FCA criticises auditor for CASS report failings). Although that separate case related to breaches of different rules, a common thread is the auditor’s failure to report concerns about authorised firms to the FCA.

Auditors should take note of the FCA’s current focus on their reporting obligations and take particular care when working for regulated firms. In this case it was sufficient that PwC reasonably believed that its client may be involved in fraud. The FCA reminds auditors to report such concerns as soon as possible and not wait or investigate whether their suspicions are conclusively established.

Read our briefing note ‘Auditors in the spotlight as the FCA takes action’ for further detail.