FCA Enforcement Against UK Audit firms

In August 2024, the Financial Conduct Authority (FCA) took enforcement action against two prominent auditing firms—PricewaterhouseCoopers LLP (PwC) and MacIntyre Hudson LLP (MHA)—highlighting the growing scrutiny on external auditors’ roles in ensuring compliance with financial regulations.

Similarities in FCA Actions

Both cases underscore the FCA’s commitment to holding external auditors accountable for failing to meet their regulatory obligations. The enforcement actions against PwC and MHA serve as a warning that the FCA will not tolerate lapses in auditing practices that could undermine the integrity of the financial markets.

Case Summaries

PricewaterhouseCoopers LLP (PwC)

– Breach: PwC failed to report suspicions of fraudulent activity while auditing London Capital & Finance plc (LCF) during 2016-2017.
– Penalty: A financial penalty of £15,000,000 was imposed.
– Key Facts: PwC encountered significant issues, including aggressive behavior and misleading information from LCF, leading to reasonable suspicions of fraud. However, PwC failed to fulfill its obligation to report these suspicions to the FCA, a serious breach of the Financial Services and Markets Act 2000 regulations.

The Final Notice can be read here.

MacIntyre Hudson LLP (MHA)

– Breach: MHA failed to prepare Client Assets Reports (CAR) in accordance with FCA regulations (CASS), omitting to report 25 breaches of CASS rules between 2015 and 2019.
– Penalty: Public censure was imposed, emphasizing the seriousness of the breaches despite no financial penalty.
– Key Facts: MHA’s failures included inadequate reporting and insufficient experience among audit team members, leading to significant regulatory oversights. These failures, though not deliberate, highlighted a lack of diligence in fulfilling their auditing responsibilities.

The Final Notice can be read here.

Implications for Regulated Firms

These enforcement actions convey a “serious message” from the FCA regarding the importance of compliance in auditing practices. The FCA has made it clear that external auditors have a critical role in “ensuring that regulated firms meet their obligations.” As stated by the FCA, firms must “act with integrity” and demonstrate “due skill, care, and diligence” in all aspects of their operations, including their relationships with auditors.

The FCA’s decision to impose significant penalties and public censures indicates that it will “take strong action against” any “breaches of regulatory obligations” by auditors.

We remind firms that they are responsible under SUP 3 for appointing auditors who have the skills, resources and experience commensurate with the nature, scale and complexity of the firm’s business and the requirements and standards under the regulatory system to which it is subject. The firm should seek confirmation of this from the proposed auditor.

Firms may also expect greater scrutiny from the auditor around potentially material contraventions of regulatory requirements, threshold conditions and, as we explained in 2020, going concern issues.  

For more information on FCA compliance contact Jon or Kim at Ellis Wilson.

To receive our monthly regulatory tracker, click here.