Sanctions against PricewaterhouseCoopers LLP and Jonathan Hinchliffe
News types: Investigations
Published: 25 March 2025
This Press Notice concerns the outcome of an investigation into the relevant Statutory Auditor(s) and/or Statutory Audit Firm(s)[1] . It would not be fair to treat any part of this announcement as constituting or evidencing an investigation into, or any findings in respect of the conduct of, any other persons or entities.
The Executive Counsel of the Financial Reporting Council (“FRC”) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against PricewaterhouseCoopers (“PwC”) and Jonathan Hinchliffe (“Mr Hinchliffe”) in relation to the statutory audit of the financial statements of Wyelands Bank plc (“the Bank”) for the financial year ended 30 April 2019 (“the FY2019 Audit”).
The sanctions are:
Against PwC:
- A financial sanction of £4,500,000 (discounted for the mitigating factor of exceptional co-operation by 5%, and further discounted for admissions and early disposal by 32.5%, so that the financial sanction payable is £2,885,625);
- A published statement in the form of a Severe Reprimand;
- A declaration that the FY2019 Audit report signed on behalf of PwC did not satisfy the Relevant Requirements; and
- An order requiring PwC to take specified action designed to prevent the recurrence of the contravention.
Against Mr Hinchliffe:
- A financial sanction of £55,000 (discounted for the mitigating factor of exceptional co-operation by 10%, and further discounted for admissions and early disposal by 32.5%, so that the financial sanction payable is £33,412);
- A published statement in the form of a Severe Reprimand; and
- A declaration that the FY2019 Audit report did not satisfy the Relevant Requirements.
PwC will also pay Executive Counsel’s costs of the investigation.
PwC was appointed as the Statutory Audit Firm for the Bank for FY2015 to FY2019, and Mr Hinchliffe was the Statutory Auditor responsible for signing the audit reports on behalf of PwC.
The Bank had been in existence since 1980, but was acquired by a new beneficial owner in 2016. As a result, it became part of the Gupta Family Group Alliance (“GFG Alliance”) – an unconsolidated group of companies under common ownership, operating in a number of industries including steel, aluminium and renewable energy.
By FY2019 the Bank’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, which were related parties so far as the Bank was concerned. The Bank’s lending activities were largely funded by deposits from retail customers, and as at the FY2019 year-end the Bank held £727m in customer deposits from over 15,000 UK public savers.
As a credit institution, Wyelands Bank was a Public Interest Entity (“PIE”) for audit purposes.
PwC and Mr Hinchliffe admitted breaches of Relevant Requirements in relation to six areas of the FY2019 Audit: risk assessment, auditing of the Bank’s compliance with laws and regulations, auditing of the Bank’s related party transactions, auditing of the Bank’s assessment of going concern, auditing of the Bank’s loans and advances, and auditing of the bank’s provision for expected credit loss.
The breaches 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. In addition, they failed to exercise appropriate professional scepticism in relation to a number of aspects of the audit.
The FY19 audit opinion was signed in July 2019. Subsequent to the Audit, in September 2019 the PRA required the Bank to limit its exposures to related parties due to concerns that the Bank had an unacceptable concentration of risk. By March 2020 the Bank had stopped entering into new credit transactions and commenced a wind down of its business. In March 2021 the PRA required the Bank to repay its depositors, which it has done. It is not alleged that the breaches by PwC and Mr Hinchliffe caused or contributed to the closure of the Bank.
Claudia Mortimore, 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."
Footnotes
-
[1]
Defined terms in this press notice refer to terms defined in the FRC’s Audit Enforcement Procedure.