The regulator has fined PwC for failing to report to the regulator its belief that London Capital & Finance plc (LCF) might be involved in fraudulent activity.

The fine comes despite an individual at LCF being "aggressive" and providing "inaccurate and misleading" information to PwC as it tried to complete an audit in 2016.

The FCA said despite the difficulties PwC should have reported its concerns about fraudulent activity.

The FCA says it is the first time it has fined an audit firm. 

In a separate case earlier this week, however, it censured national accountancy firm MHA MacIntyre Hudson for failing to notify the FCA of rule breaches by firms it had audited.

In May the Financial Reporting Council, the regulator of auditors, accountants and actuaries, imposed major fines and sanctions on three audit firms, including PwC, over their failings related to the collapse of £237m mini-bond firm London Capital & Finance (LCF) plc. The three firms sanctioned were Oliver Clive & Co Limited (OCC), Pricewaterhouse Coopers LLP (PwC) and Ernst & Young (EY). PwC was hit with a £4.9m fine by the FRC.

The FCA accepted that PwC encountered "significant issues" throughout its 2016 audit of LCF.

A senior individual at LCF acted “aggressively” towards auditors at PwC as the firm tried to collect and check information and the firm provided PwC with inaccurate and misleading information.

PwC found the audit "very complex" and it took much longer to complete than anticipated, the FCA said. LCF’s actions, and PwC’s own work on the audit, led PwC to suspect that LCF might be involved in fraudulent activity.

PwC was duty bound to report those suspicions to the FCA as soon as possible, the FCA said, but failed to do so. PwC eventually satisfied itself that LCF's 2016 accounts were accurate but still had an obligation to report its previous concerns to the FCA, the watchdog said. 

LCF went into administration in January 2019 after the FCA ordered the firm to withdraw misleading promotional material for the sale of mini-bonds. Thousands of investors were misled because the firm failed to highlight the risks of investing in the bonds. 

The Serious Fraud Office currently has an open criminal investigation into the failure of LCF. 

Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "Auditors have a central role to play in keeping our markets clean. They have privileged access to information and they are required by law to report suspicions of fraud to the FCA. 

“There were a number of red flags that led PwC to suspect fraud. They should have acted on them immediately. Their failure to do so deprived the FCA of potentially vital information.” 

The FCA said the fine was “the final outcome” in connection to failures relating to LCF. 

The FSCS has paid out £57.6m to eligible bondholders who lost money when LCF collapsed. The Government has also paid £115m to eligible bondholders through a “one-off” scheme which is now closed. The work of LCF’s administrators to recover creditors’ funds remains ongoing, the FCA said.

• Further reading: Final Notice 2024: PricewaterhouseCoopers LLP.