UK’s accounting watchdog Financial Reporting Council (FRC) has imposed a fine of £4.5m ($5.82m) on PwC for audit failures related to Wyelands Bank’s financial year ending 30 April 2019.
PwC and the audit’s lead, Jonathan Hinchliffe, have admitted to several breaches of relevant requirements during the audit.
However; the fine against PwC, originally set at £4.5m, has been reduced to £2.89m after adjustments for cooperation and early resolution.
Additionally, PwC will face a “Severe Reprimand”, a declaration of non-compliance, and an order to take action to prevent future contraventions.
Similarly, Hinchliffe faces a reduced fine of £33,412, a Severe Reprimand, and a declaration of non-compliance.
PwC and Hinchliffe, who are required to cover the Executive Counsel’s costs of the investigation, have admitted to breaches in six areas of the FY2019 Audit.
These areas included risk assessment, auditing of the Bank’s related party transactions, auditing of the bank’s compliance with laws and regulations, and auditing of the bank’s assessment of going concerns.
It also includes auditing of the bank’s loans and advances, and auditing of the bank’s provision for expected credit loss.
PwC served as Wyelands Bank’s statutory audit firm from 2015 to 2019, with Hinchliffe responsible for signing the audit reports.
The bank, part of the Gupta Family Group (GFG) Alliance since 2016, primarily engaged in trade finance with significant exposure to related parties.
At the end of the 2019 financial year, Wyelands Bank held £727m in deposits from more than 15,000 UK savers.
The FRC’s investigation revealed that PwC’s audit team failed to adequately assess the risks associated with the bank’s lending practices, particularly its exposure to related parties within the GFG Alliance.
The team also neglected concerns raised by the Prudential Regulation Authority (PRA) regarding the bank’s risk concentration.
Following the audit, the PRA intervened in September 2019, leading to a wind-down of the bank’s operations and the repayment of depositors.
The FRC, however, has clarified that the breaches by PwC and Hinchliffe did not contribute to the bank’s closure.
FRC deputy executive counsel Claudia Mortimore said: “The audit breaches in this case highlight the importance for auditors to have a full understanding of the audited entity and its business. This is particularly important where there has been a change of ownership and change in the nature and scale of activities.
“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. This led to a number of serious failings, which had the potential to adversely affect retail depositors.”
