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The UK accounting regulator has fined PwC £2.9mn for “serious and numerous” failures in its audit of steel magnate Sanjeev Gupta’s Wyelands Bank, including failing to properly understand the bank’s lending business, before it collapsed in scandal.
The Big Four firm admitted it had breached several requirements relating to the audit of Wyelands Bank’s 2019 accounts, including in its risk assessment and vetting of the lender’s related party transactions, the Financial Reporting Council said on Tuesday.
Gupta acquired Wyelands Bank in 2016, with the stated ambition of supporting UK industry, but in 2021 the Bank of England’s Prudential Regulation Authority ordered the lender to repay customers’ deposits — it held £727mn of them at the end of the 2019 financial year — amid concerns over its financial position.
PwC and its partner responsible for signing off Wyelands’ audit report had failed to “properly understand the bank’s lending”, which was central to its business model, and did not obtain enough evidence to prove that some loans actually existed, the FRC said.
The FRC found that PwC also failed to properly question the bank when it refused to disclose what proportion of its business had been introduced by Gupta’s GFG Alliance, his wider business empire of steelworks and metals plants. An estimated 84 per cent of the bank’s business was introduced by other companies in Gupta’s alliance in 2019 but PwC had not considered the risks of that exposure, the FRC said.
The PRA’s repayment order came after investigations by the Financial Times revealed that Wyelands Bank had funnelled depositors’ money into GFG.
The FRC’s probe into PwC is one of several investigations opened in relation to audits of GFG and its main lender Greensill Capital, which collapsed in 2021, sparking a financial and political scandal. The FRC has ongoing investigations into small and mid-tier audit firms Saffery Champness, HW Fisher and King & King.
The FRC found that Wyelands’ audit team at PwC “incorrectly recorded that there was no adverse publicity about the bank’s owner”, even though there had been “several articles” raising concerns around a lack of transparency at GFG.
Jonathan Hinchliffe, the PwC partner who led an audit team that “failed to exercise appropriate professional scepticism”, was also fined £33,412 and reprimanded by the FRC. He resigned from PwC after “significant impact” caused by the investigation.
Hinchliffe did not respond to a request for comment made through PwC.
Claudia Mortimore, the deputy executive counsel at the FRC, said: “In this audit, the risks around the bank’s membership of and involvement with the GFG Alliance were not properly recognised and considered, despite clear warnings to the bank from the PRA.”
The FRC’s decision notice criticised PwC for not checking its risk assessment of the bank after its correspondence with the PRA before and during its 2019 audit. The auditor also did not “properly challenge” the bank’s assessment of its own viability, the regulator said.
PwC had audited the bank from 2015 to 2019, earning £206,000 for the final audit. The firm resigned suddenly in November 2019, citing an undisclosed conflict of interest.
PwC said on Tuesday: “We acknowledge and apologise that aspects of this piece of work fell short of the required standards. Since 2019, we have undertaken a multiyear programme to enhance audit quality and have, as a result, seen significant changes to our audit practice.”
PwC’s penalty was cut from an initial £4.5mn to reflect its co-operation, the FRC said. Hinchliffe’s fine was also reduced from an initial £55,000.
GFG declined to comment.
