FRC probes three firms over London Capital & Finance audits

Three audit firms – PwC, EY and Oliver Clive & Co – are facing a Financial Reporting Council (FRC) investigation into their auditing of London Capital & Finance (LC&F), a mini-bond investment specialist which collapsed last year amid controversy over the regulation of its high-risk products

The regulator will examine the work of Oliver Clive & Co, a small central London firm, for the one-month period ended 30 April 2015. It is also examining PwC’s audit for the year ended 30 April 2016, and EY’s auditing for the year ended 30 April 2017.

All three investigations will be conducted by the FRC’s enforcement division under the audit enforcement procedure.

LC&F sold unregulated, high risk mini-bonds. When it went into administration in January 2019, it had over 11,600 savers who stood to lose much of the £237m the company had attracted in investments.

Its collapse followed concerns raised by the Financial Conduct Authority (FCA) in December 2018, when the regulator directed the company withdraw its promotional material for its mini-bonds on the basis that the marketing was ‘misleading, not fair and unclear’.

The Treasury select committee subsequently raised a number of queries about the FCA’s handling of the collapse. Whilst the promotional material is regulated by the FCA, the product itself—mini-bonds—are unregulated.

An independent review of the FCA’s handling of the mini-bond company was due to report in July, but recently announced its findings will not now be ready until 30 September.

The FCA announced proposals last week to make permanent its ban on the mass-marketing of speculative illiquid securities, including speculative mini-bonds, to retail investors.

The Serious Fraud Office (SFO) announced an investigation into individuals associated with LC&F in March 2019.  At this time, four individuals were arrested in the Kent and Sussex areas, with a further arrest in June.  All five individuals have been released pending further investigation.

This month, the SFO said it had extended its investigation to cover investments offered between 2013 and 2018. These investments were sold through Sales Aid Finance (England) Ltd (SAFE), which changed its name to London Capital & Finance Ltd in July 2015.

The FRC has two investigations open into EY, one concerning its auditing of collapse travel operator Thomas Cook, and the other focused on NMC health, the Dubai-based healthcare provider which went into administration in April.

The regulator is also probing PwC’s auditing of BT, following the discovering of discrepancies in the accounts of its Italian subsidiary.

An EY spokesperson told Accountancy Daily: ‘We can confirm that EY has been notified of the FRC’s intention to conduct an investigation into the audit of London Capital & Finance plc for the year ended 30 April 2017.

‘We will be fully cooperating with the FRC during their enquiries. It would be inappropriate to comment further at this time.’

 

PwC said: ‘We will cooperate fully with the FRC. We are committed to delivering consistently high quality audits and in June 2019 introduced a major ongoing programme to enhance audit quality across the firm.’

Oliver Clive & Co have been asked for comment.

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