Five key takeaways from the report on the FCA’s oversight of LCF
The complaints commissioner has published its final report on the Financial Conduct Authority’s (FCA) oversight of collapsed mini-bond provider London Capital & Finance (LCF).
The Financial Regulators Complaints Commissioner (FRCC), which investigates complaints against organisations including the FCA, accepted 440 complaints about the watchdog’s regulation of LCF, and 232 responses to its preliminary report.
LCF entered into administration in January 2019, leaving thousands of everyday investors in the dark about the recovery of their funds. The administration process has since been extended to 2024, with the FCA under scrutiny for its perceived failures in governing the investment firm.
Here Peer2Peer Finance News summarises five key takeaways from the final report from the complaints commissioner Amerdeep Somal.
Read more: Deadline extended for complaints about LCF supervision
Read more: FCA’s complaints commissioner criticises its handling of LCF debacle
FCA allegations and apology
The complaints commissioner has welcomed the fact the FCA has agreed to implement the recommendations from the Gloster report and also agreed with the watchdog’s decision to offer an apology to complainants.
The FRCC agreed with allegations that the City watchdog should have picked up on LCF’s misleading marketing and advertising sooner, and that it failed in its authorisation and supervision of LCF.
However, the complaints commissioner supported the FCA’s decision to refute the allegation that its actions caused LCF to fail.
The FCA’s register was misleading and needs work
The FRCC agreed with the allegation, which the FCA disagreed with, that information about LCF on the financial services register was misleading and that consumers believed the firm was reputable and they were purchasing a regulated product protected by the Financial Ombudsman Service and Financial Services Compensation Scheme.
LCF used marketing materials which highlighted its FCA authorised status in order to entice consumers, despite the fact that many of the bonds it issued were unregulated. The FRCC said this so called ‘halo effect’ resulted in a number of the firm’s clients believing they were investing in regulated products when this was not true in all cases.
The FRCC said there are “significant problems with the FCA register”. It said it was concerned the halo effect is still there so investors will not be able to grasp from the register that whilst a firm is regulated, the activity to which they are investing in may not be.
The complaints commissioner recommended the FCA to take steps to mitigate the halo effect and to keep up to date with the maintenance of its register.
Compensation
Read more: FCA accused of “unlawful” changes to LCF compensation scheme
The FRCC said that the FCA’s approach to compensatory payments in the LCF cases is “unjustified and does not stand up to scrutiny”.
The complaints commissioner said that the compensation due to supervisory or regulatory failings from the FCA will never be available to complainants because of the FCA’s test of ‘sole and primary cause’ and criteria that payments should only be made in ‘exceptional circumstances’.
The FRCC said the FCA should re-decide the LCF cases in line with a new, adequately justified test.
The FCA’s handling of complaints
The FRCC said it recommended that the FCA publish its guide on its approach to determining payments for complaint handling delays on its website.
The complaints commissioner said the FCA states on its website that it sets out to be as open and transparent as possible while its internal guide on its approach to these payments is marked as restricted and not shared publicly.
Andrew Bailey
The FRCC said that a few complainants have asked how Andrew Bailey could ‘knowingly allow illegal financial activity on his watch?’
Bailey served as chief executive of the FCA from July 2016 until becoming the governor of the Bank of England on 16 March 2020.
However, the FRCC said it has not seen any evidence that Bailey, or any FCA staff, knowingly allowed illegal activity under his watch whilst he the boss at the watchdog and does not think it is relevant for it to look at any further.