Accounting giant PwC has been fined £2.89mn for failures in its audits of defunct trade finance lender Wyelands Bank.
The UK’s accounting regulator, the Financial Reporting Council (FRC), says PwC and its statutory auditor of Wyelands, Jonathan Hinchliffe, failed to recognise or properly consider the risks of the bank’s dependence on business with members of the GFG Alliance of companies linked to businessman Sanjeev Gupta.
Wyelands was taken over by Gupta in 2016, and its primary business was trade finance, mainly invoice discounting, funded by deposits from UK retail customers.
More than 80% of the bank’s trade finance lending was to related companies within the GFG Alliance, the FRC says.
The regulator says the breaches by PwC “primarily 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 bank’s regulator, the Prudential Regulation Authority (PRA) in that regard,” the FRC says in a statement released on March 25. “In addition, they failed to exercise appropriate professional scepticism in relation to a number of aspects of the audit.”
The FRC’s deputy executive counsel, Claudia Mortimore, says PwC failed to interrogate Wyelands’ risk concentration “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.”
In addition to the fine against PwC, Hinchliffe was fined £33,412. Without discounts for admissions and co-operation, the fine against PwC would have been £4.5mn.
PwC did not respond to a request for comment from GTR but says in a statement reported by CityAM that its audit “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,” the company adds.
“Recent supervision reports reflect the improvement and investment made in audit quality, which remains our top priority.”
Wyelands starting winding down its business in 2020 after the PRA had instructed it to limit exposures to related companies the previous year.
The PRA later censured Wyelands for providing a receivables financing programme without checking whether the underlying goods existed or whether there was any economic incentive for the underlying buyers, among other failures.
Last year the prudential regulator fined the bank’s chief executive between 2016 and 2020 for failing to act with “due skill, care and diligence” and not ensuring the bank had adequate controls of its large exposures.
The GFG Alliance is also at the centre of an investigation by the UK’s Serious Fraud Office into “suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct” at the companies, which includes the group’s financing arrangements with collapsed trade financier Greensill.
