Financial Conduct Authority  

Watchdog blasts failings in FCA supervision unit

Watchdog blasts failings in FCA supervision unit

The Complaints Commissioner has asked the financial regulator to take "urgent steps" to ensure its supervisory staff understand the consequences of "inadequate investigation and insufficient follow-up" within its organisation. 

The warning follows failings found in the Financial Conduct Authority's supervision division where information received about a conflict of interest at a regulated firm was not correctly followed up. 

The failings were found by the regulator's own complaints team, in response to a complaint submitted by a consumer  advised by a regulated firm to invest in another business in which it shared common ownership.  

Article continues after advert

In a decision published last month the Complaints Commissioner said these failings were of "considerable concern" and had "clearly hampered regulatory action to some extent". 

The complainant first raised the issue with the regulator in 2017.

They had been advised between 2009 and 2015 to invest their £77,200 pension and other savings in unregulated funds by an adviser whose firm had shared ownership with the company he was investing in.

The conflict of interest between the advice firm and the company into which the funds were invested was not disclosed to the client, and the entire investment was lost when the company went insolvent in 2017. The advice firm is also now in voluntary liquidation. 

The client has recovered about £34,000 from the Financial Services Compensation Scheme since.

The client also raised concerns with the regulator and commissioner that the adviser who originally recommended the investment has since set up his own IFA firm, receiving FCA authorisation in 2016.   

Complaints commissioner Antony Townsend commended the regulator for a "thorough" review of its supervision division, but said he was "very concerned" about the failings it identified - especially with regard to the information received by the regulator in respect to conflicts of interest at the advice firm. 

He said: "I note with considerable concern the supervision failings that the complaints team has identified, particularly following substantiated referrals from the Financial Ombudsman Service.

"This has clearly hampered regulatory action to some extent."

He said the client had trusted the ‘badge’ of FCA approval only to be let down by unscrupulous advice, including an unacknowledged conflict of interest, to invest in unregulated products.

"The evidence shows that the FCA was made aware of the existence of this conflict of interest but took no regulatory action and closed their file," he added.

The FCA's complaints team has since recommended the supervision team "consider enhancements" to its closure process for similar cases. 

But Mr Townsend said: "I am not satisfied that the complaints team’s recommendations go far enough. It is not just a question of closure of decisions but of an ability to clearly identify potential for consumer detriment and act on it.

"In addition to the recommendations made by the complaints team, I have recommended that the FCA takes urgent steps to ensure that all its supervisory staff understand the serious consequences that inadequate investigation and insufficient follow-up can cause to consumers in cases such as this, using this case as an example."