Big Four auditors fined £9m for LCF mini-bond disaster

Big Four accountants PwC and EY were yesterday fined more than £9million in total over their botched audits of a collapsed ‘mini bond’ firm.

London Capital & Finance (LCF) raked in £237million from 11,625 savers – many of them retired and elderly – before going bust at the start of 2019.

Bond holders – attracted by the promise of juicy returns of up to 8 per cent a year – were told their money would be lent to companies that needed it to grow.

But instead the cash was funnelled into risky ventures and savers were left nursing hefty losses when LCF collapsed.

Investors were likely to have been reassured by audits giving them a clean bill of health, according to the Financial Reporting Council (FRC), the accountancy watchdog.

Collapse: London Capital & Finance raked in £237m from 11,625 savers – many of them retired and elderly – before going bust at the start of 2019

Following an FRC investigation, the accountancy firms have admitted to a series of rule breaches.

PwC and EY, which audited LCF in 2016 and 2017 respectively, have been fined £4.9million and £4.4million following an investigation by the watchdog.

Oliver Clive & Co (OCC), a smaller firm which audited LCF for one month in 2015, was fined £42,000. 

In each case, the accountants ‘failed to identify and assess the risks of material misstatement through understanding LCF’s business’, said Jamie Symington, deputy executive counsel at the FRC.

‘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.’

The FRC also fined PwC partner Jessica Miller £105,000 while EY’s Neil Parker was fined £47,250. 

Emma Benjamin of OCC was given a £14,000 penalty. An EY spokesman said that its audit ‘fell short of our standards and for this we apologise’. It said it was committed to learning from its mistakes.

A PwC spokesman said: ‘We are sorry our work in 2016 did not meet the standards expected and that we expect of ourselves.

In the eight years since this work took place, we have made significant changes to our audit methodology, policies and guidance.’

OCC could not be reached for comment.

Earlier this year, the Financial Conduct Authority (FCA) banned former LCF director Floris Jakobus Huisamen and fined him £31,800 for ‘recklessly’ approving misleading financial promotions. 

The reputation of the FCA – led in the run-up to the collapse by Andrew Bailey, now governor of the Bank of England – was also tarnished by the episode. It was criticised in an independent review in 2020.

The Serious Fraud Office is investigating the LCF case.