FCA looking at Blackmore Bond scandal in same 'forensic detail' as LCF

Speaking at the regulator's annual general meeting (AGM) today (October 12), the FCA’s executive director of enforcement and market oversight, Mark Steward said the regulator’s focus in relation to the bond scandal has been focused on the way in which those financial promotions operated.

The Manchester-based mini-bond scheme collapsed in April 2020. It had promised investors interest payments of up to 10 per cent a year from a property portfolio it was supposed to build with the money.

Around 2,000 investors lost £46mn, despite being told their money was guaranteed up to £75,000 through an insurance scheme. One investor lost his entire military pension, while another family lost £40,000.

The company running the scheme was not, however, regulated by the FCA, and no individuals involved in the scandal were regulated by the City watchdog either.

Steward said the insurer is a legitimate insurer and the FCA understands that claims have been made on behalf of Blackmore bonds against that insurance policy and at the moment, the insurer has not accepted those claims.

He explained that the insurance component was an important part of what the Blackmore bond proposition offered to consumers and argued that between the liquidator and the insurer, there is more to play out, but “there is nothing untoward about the insurance policy itself”.

Earlier this year, a BBC Panorama documentary about the Blackmore Bond scandal raised questions over the parameters of the FCA’s powers. 

Discussing the FCA’s role, he said the area in which the FCA is focused is whether the FCA authorised firms promoting the bonds carried out the relevant checks.

The way in which the legislation operates Blackboard Bonds, an unregulated firm which is able to issue many bonds without being regulated, is outside the FCA’s perimeter.

“But the marketing and promotion of those bonds could only happen through the agency of FCA authorised firms who approved those financial promotions that were issued by Blackmore Bonds,” he explained.

Steward said it looked into whether the two FCA authorised firms undertake correct due diligence and check out what was being offered.

“Did they make sure that what was being provided to consumers the information has been provided to consumers in those promotions, did they make sure that information was accurate, was clear, not not misleading,” he said. 

“Our work in relation to this is virtually complete. But at this stage, it does look as though those financial promotions were largely accurate in what they set out and contained. Very relevant risk warnings for consumers.”

Steward said the FCA is doing additional work around this as the proposition for Blackmore could not be given to any retail consumer.

The consumer would have to be a qualifying consumer to buy Blackmore bonds largely because of the higher risks involved in dealing with this kind of investment. 

“You had to be someone who could who had the necessary financial strength to deal with a loss or you had to be experienced in some particular way in that kind of instrument,” he said. 

“I won't go into the technicalities about the qualities that you had to have to be invested in Blackmore Bonds, but we're making sure that that process worked well and through our investigations, we've obtained what was actually being said to investors, on top of what was contained in the financial promotions themselves.

“We are looking at these matters in forensic detail in the same way in which we're looking and we have looked at LCF and the same way in which the Serious Fraud Office is looking at LCF. 

“I don't want anyone to have any view that because Blackmore itself was unregulated, because Blackmore bonds don't need any kind of imprimatur from the FCA to be offered to consumers, that means that it's hands off by the FCA.

“We are looking at this in the same way we'd look at any other matter, with the same degree of forensic scrutiny, particularly because it's clearly a matter of significant public interest and around 2,200 people have lost a lot of money.”

Steward said around £47mn pounds was invested in Blackmore and of that 2,200 people, it has received 36 complaints.

“It is not a high amount, but there's a lot of public interest in ensuring that what happened with Blackmore had no misconduct or other impropriety that affected what happened,” he said. 

Steward said the FCA has also worked closely with the Insolvency Service, who have looked at what happened with Blackmore and said their work is complete.

“They decided that there is no basis to take any further action,” he said. 

“We're still looking at the way in which consumers were spoken to by those involved in the promotion and marketing of Blackmore Bonds to make sure that those promotions themselves are actually conducted in a fair and proper way.”

sonia.rach@ft.com 

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