PwC encountered significant issues throughout their 2016 audit of LCF. A senior individual at LCF acted aggressively towards auditors, and the firm provided PwC with inaccurate and misleading information.

PwC found the audit very complex, and it took considerably longer to complete than anticipated. 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, but failed to do so.

PwC eventually satisfied itself that LCF’s 2016 accounts were accurate. Whether or not its suspicions remained, it still had an obligation to report its previous concerns to the FCA.

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 they were not given the full picture about the risks of the product.

The Serious Fraud Office 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 has acknowledged in its final notice that “PwC’s breach was not reckless or deliberate”, and the regulator “does not hold PwC directly responsible for the losses resulting from LCF’s collapse”.

When reached for comment, a PwC spokesperson told Scottish Financial News: “We have reached a settlement with the FCA to resolve an unintentional reporting breach.”