The Financial Conduct Authority (FCA) consistently failed to adequately regulate and supervise London Capital and Finance (LCF), an independent investigation has found.
The investigation, led by Dame Elizabeth Gloster, assessed the FCA’s actions, policies and approach when regulating LCF between April 2014 and January 2019.
Go deeper with GlobalData
Gloster revealed that the watchdog had consistently failed to spot the red flags due to significant gaps and weaknesses in its policies.
LCF issued non-transferable securities, known as mini-bonds, to 11,625 investors with a value of over £237m ($321m). The firm entered into administration in January 2019.
According to the report, which was updated yesterday, the FCA was “unduly limited” in its reach, otherwise known as the Perimeter. This meant that the FCA devoted insufficient attention to elements of LCFs operations which were unregulated.
Explaining the authority’s shortcomings, the report states: “The FCA’s flawed approach to the Perimeter resulted in LCF being able to use its FCA-regulated status to present an unjustified imprimatur of respectability to the market, even in relation to its non-regulated bond business,” the report found.
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataMoving forward
Subsequently, the FCA received and accepted nine recommendations from the report. Charles Randell, chair of the FCA, admitted there were “a number of things we could have done better” in its supervision of LCF, with the report reinforcing the significance of the FCA’s role in ensuring consumer protection.
Randell continued: “We accept all the recommendations that have been made to the FCA and we are profoundly sorry for the mistakes we have made.
“The collapse of LCF has had a devastating effect on many investors and we will do everything we can to conclude our investigations as quickly as possible and support the recovery of further funds for investors.”
According to Randell, the FCA has already made significant changes in its approach to supervising firms, and he believe the watchdog has learnt “considerable lessons” from the events.
Promising to provide public updates as the FCA implements the report recommendations, Randell concluded: “Consumers must have trust in the FCA to do its job properly. We need to reinforce a culture in which people at the FCA are empowered and confident to take responsibility for bold interventions.
“The organisation has made progress in developing this culture in the last several years, and I’m proud of what we have achieved during the current coronavirus crisis. We know we have more to do. The FCA Board and I have every confidence that continuing the transformation of our organisation is the right way to bolster trust in the FCA and realise our ambitions for change.”
The report also made four additional recommendations for the Treasury and wider Government.
Economic Secretary to the Treasury, John Glen, said: “LCF’s failure had a significant impact on the bondholders who have lost their hard-earned savings and the government will take forward the report’s recommendations to ensure our regulatory system maintains the trust of the consumers it is there to protect.”
