The Financial Conduct Authority has defended itself against accusations made by the complaints commissioner over its register.
In response to commissioner Amerdeep Somal’s final report on the London Capital & Finance mini-bonds scandal, the regulator said it does not agree with the conclusion that its register was misleading and led investors into erroneously thinking they were investing in a safe product.
The commisioner's report was in response to the regulator's handling of the scandal, which saw retail investors lose more than £230mn when the firm collapsed in 2019, putting the funds of some 14,000 bondholders at risk.
The scandal was dubbed one of the “largest regulatory failures in decades” at the time.
In the report to which the FCA was responding, Somal said it was difficult for her to see that the register could not have given the investors the wrong impression, and urged the FCA to “seriously consider” amending the warning message on its register by making it simple and concise for investors to understand the risks involved.
The FCA said it gives authorised persons permission to carry out certain financial services as it provides information about those permissions on the register, as required by legislation.
“Based on the information that we have, the register’s entry correctly reflected LCF’s permissions at the time," the regulator said.
“Given this, we cannot agree with the commissioner’s conclusion that the register was misleading.”
The FCA added that, although the register is an important source of information, it is not designed to be the sole source of information for investors to use before making investment decisions.
It also said it would expect investors to consider a wider range of information from different sources to help them understand potential investment and risks involved, as well as to identify if they are protected if things go wrong.
However the city watchdog did accept that there is scope to improve the register, and said it has since changed it so that its role is displayed more clearly and prominently.
Halo effect
The regulator also responded to the “halo effect” mentioned by Dame Elizabeth Gloster in her report on the scandal, which was re-iterated by the commissioner.
LCF was regulated by the FCA, but certain investments it provided were not, and it was claimed that this led to investors getting the "wrong impression" about what was regulated and what was not, leading them to believe LCF was a reputable firm and their products were regulated.
In its response, the FCA said it “still thinks” there is an important distinction between the fact that LCF was authorised, and the accusations of the register being misleading.
“We do not believe that in presenting the legally required information, as in this case, the register could be described as misleading,” adding that many firms are FCA authorised but also undertake activities or offer products or services that are unregulated.
In 2017, Somal's predecessor ordered the FCA to pay an adviser £1,500 after its register gave the inaccurate impression they were directors of a firm which had been censured.
Following this case, the FCA committed to a review of the way its register is designed to make it more flexible.
Since then the FCA has come under fire on more than one occasion for the inaccuracy of its register.
Most recently in 2021 the the commissioner upheld in part a complaint which alleged the FCA's register of financial services firms had shown a firm as an active company years after it was wound up.
sally.hickey@ft.com
