The Financial Conduct Authority has been accused of "box-ticking" in its management of the financial services register, as the regulator admitted it should review its handling of tip-offs.
In a decision published in October the Complaints Commissioner warned the regulator was not prioritising the "very real risk" of consumers falling victim to scam firms because its register was not kept up to date.
A consumer had complained the details of two escrow firms were incorrect on the register, warning the regulator one firm was now insolvent and the other had been dormant for two years, but the FCA said it would never remove the details of a firm from the register even if it was no longer authorised.
The FCA has always maintained it is the responsibility of firms to report any relevant changes in their businesses to the regulator so it can update the database accordingly, a stance it upheld with the latest complaint.
The complaint was escalated to the Complaints Commissioner who sided with the consumer and criticised the regulator for taking more than nine months to investigate the issue, which he said was "not very complex".
Whilst the commissioner acknowledged it was not feasible for the FCA to make its own independent checks on each of the more than 50,000 firms it regulates, he said the regulator had "missed the point" of the complaint and interpreted it in a "narrow and unhelpful way".
Commissioner Antony Townsend said: "From my previous investigations of complaints about the FCA register, it is clear that the FCA is aware that not all the information on its register is correct and it has a major project under way to address the register’s deficiencies.
"The FCA rightly places the responsibility on firms to notify it of any material changes in order to be able to keep the register accurate, given the number of firms and individuals it regulates and the resources available to manage the information on the register. However, I am very concerned about the rigid approach the FCA has displayed in this case."
Mr Townsend said the FCA technically did nothing wrong in not updating the register when notified by a third party of an error, because its procedures required the principal of a firm to submit a form requesting a change of status before the regulator acts to make any amendments to the register.
But he added: "But this puts a box-ticking exercise above the very real risk of consumers falling victim to a scam firm potentially seeking to exploit the deficiencies of the register and it not reflecting the true position of firms. This is not the first complaint I have had of this nature."
The commissioner said this risk was clearly demonstrated by the fact the dormant firm about which the consumer had raised concerns had in fact been cloned.
As a result of the complaint the register entry for this firm was later amended.
But Mr Townsend said the register entry for the other insolvent firm has yet to be updated because the correct form had no yet been submitted by its principal firm, which itself is now in liquidation.
He added: "I do not believe it was right for the FCA to insist that its records cannot be amended until a form is received, even if that means leaving consumers exposed to the risk of being defrauded by clone firms and rogue operatives.
"I recommended that the FCA reviews its policy about not taking active steps to check the status of firms and update the register as a matter of urgency when it is provided with information that a firm should no longer be authorised to carry out regulated activities, in order to ensure that its objective of consumer protection is met."
In response to the commissioner's concerns the FCA said it has plans in place to address the points raised.
It added: "The FCA also accepts the commissioner's recommendation that we should review our processes where firms have not reported relevant changes but a third party has raised accuracy concerns."
rachel.mortimer@ft.com
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