PwC has been fined £2.9m and severely reprimanded by the UK’s accounting regulator for “serious failings” in its audit of the failed Wyelands Bank, which was owned by Sanjeev Gupta, the boss of troubled Liberty Steel.
The accountancy group was ordered by the Financial Reporting Council (FRC) to pay the penalty after issues with its audit of the lender’s accounts for the year to 30 April 2019 and told toensure the failings do not happen again.
However, because of “exceptional cooperation” by PwC and its admissions the actual fine it has to pay was reduced from £4.5m to £2.9m, the FRC said.
PwC audited the accounts of Wyelands Bank between 2015 and 2019. The main auditor, Jonathan Hinchliffe, who signed off the 2019 accounts on behalf of PwC, has been fined £50,000 and also been severely reprimanded. His penalty has been reduced from £55,000 to £33,412.
Wyelands Bank was set up in 1980 and began winding down in March 2020. In 2016, it became part of the Gupta Family Group (GFG) Alliance, a sprawling business empire ranging from finance to metals and renewable energy that was the largest client of Greensill Capital, the financing company that went bust in 2021 after one of its main insurers declined to renew its cover.
Gupta was described as “the saviour of steel” when he began rescuing failing British steelworks in 2017. The Serious Fraud Office in May 2021 announced an investigation into suspected fraud, fraudulent trading and money laundering at companies within the GFG Alliance, including its financing arrangements with Greensill.
Greensill employed David Cameron, the foreign secretary and former prime minister, as an adviser at one stage, and was one of the biggest backers of GFG Alliance companies.
PwC will also pay the FRC’s executive counsel’s costs of the investigation.
Last January, the former chief executive of Wyelands, Iain Mark Hunter, was fined nearly £120,000 by the Bank of England’s regulatory arm, the Prudential Regulation Authority (PRA), for not managing the troubled lender’s exposure properly.
By 2019, Wyelands’s business was mainly in trade finance, primarily invoice discounting, and an estimated 84% of its business had been introduced by companies in the GFG Alliance, described as “related parties” by the FRC. The bank’s lending activities were largely funded by deposits from retail customers, and by April 2019 it held £727m in customer deposits from more than 15,000 UK public savers.
PwC and Hinchliffe admitted breaches of relevant requirements in relation to six areas of the 2019 audit: risk assessment; auditing of the bank’s compliance with laws and regulations; its related party transactions; its assessment of going concern; loans and advances; and its provision for expected credit loss.
The FRC said the breaches mainly stemmed from a single common cause: “The failure of the audit team to properly understand the bank’s lending and adequately consider the risks posed by its actual and potential exposure to related parties in the GFG Alliance.”
The audit team also failed to properly examine concerns raised by the PRA, and failed to exercise appropriate professional scepticism over aspects of the audit.
PwC said: “We acknowledge and apologise that aspects of this piece of work fell short of the required standards.
“Since 2019 we have undertaken a multi-year programme to enhance audit quality and have, as a result, seen significant changes to our audit practice. Recent supervision reports reflect the improvement and investment made in audit quality, which remains our top priority.”
Hinchliffe, who no longer works for the accounting group, declined to comment.
The audit was signed off in July 2019. In September that year, the PRA ordered Wyelands to limit its exposure to related parties due to concerns it had an unacceptable concentration of risk. By March 2020, the bank had stopped entering into new credit transactions and started a wind-down of its business.
In March 2021, the PRA ordered the lender to repay its depositors, which it has done. It is not alleged that the breaches by PwC and Hinchliffe caused or contributed to the closure of Wyelands, the FRC said.
Claudia Mortimore, the FRC’s deputy executive counsel, 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.”
Gupta’s Whyalla steelworks in southern Australia were put into administration last month. Administrators said it was “running on empty” and left in a “dangerous” financial position.
