MPs call for inquiry into effectiveness of FCA

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MPs call for inquiry into effectiveness of FCA

Peter Gibson, chairman of the All-Party Parliamentary Group on Personal Banking and Fairer Financial Services, said the two reports about the regulator’s handling of the London Capital & Finance and Connaught failures that were published last week provided “irrefutable evidence” that the FCA is failing to regulate effectively and that an inquiry is needed.

Mr Gibson said the industry needs “ timely and targeted transformation” to ensure the regulator is fit for purpose and holding firms to account.

He said: “I will be liaising with all the relevant parliamentary bodies and many parliamentary colleagues over the coming weeks to ensure an appropriate inquiry is organised that ensures all stakeholders are spoken to, including the authors of the two reports, those responsible for the FCA’s poor performance and groups representing consumers that have been harmed, to ensure the current crisis in confidence about the FCA’s capability is turned into something positive and truly transformational.

“It is of systemic importance, particularly post-Brexit, that the UK can have confidence in those responsible for regulating our strategically-important financial sector.

“Nothing should be off the table at this point, especially as the reports show that had the FCA acted properly on the intelligence it was given, the LCF, Connaught and even the Woodford scandals need not have happened at all.”

The first of the two highly scathing independent reports, by Dame Elizabeth Gloster into the collapse of LCF, concluded the City watchdog had failed to properly regulate the company and warned its handling of information from third parties regarding the business was "wholly deficient".

The report claimed the root causes of the City watchdog's failure to regulate the mini-bond provider properly were "significant gaps and weaknesses" in the policies and practices it implemented to analyse the business activities of regulated firms.

The second report, by Raj Parker into Connaught, warned the Financial Conduct Authority's regulation of entities and individuals connected to the fund was "not appropriate or effective" and it could have done more to protect investors. 

Mr Parker also echoed the criticism of the FCA made by the Complaints Commissioner, who said the FCA had "shifted the focus" away from its regulatory failings onto IFAs.

Kevin Hollinrake, a member of the APPG, is equally convinced of the need for an inquiry, saying there was something “seriously wrong” with the FCA.

Mr Hollinrake said: “I’ve had many reasons to question the competence of the FCA’s leadership over recent years on a range of matters that have caused great public detriment, particularly to people running businesses."

Another member of the group, Paul Howell, said the findings of the reports “undermine public confidence” and it was “imperative that this is investigated fully and integrity restored”.

Last week (December 18), the Treasury Committee said it had plans to take further oval evidence on the findings of the investigation into the City watchdog's part in the LCF scandal. 

Mel Stride, chairman of the Treasury committee, said the report exposed a "litany of failings" at the FCA. 

He added: "We will look at the detail of this important report thoroughly and the committee plans to take oral evidence on it, as well as on any wider implications for the regulatory regime, in the new year."

HM Treasury first requested the independent investigation in May 2019 after the mini-bond provider collapsed owing more than £230m and putting the funds of some 14,000 bondholders at risk.

Following Dame Elizabeth's report the Treasury confirmed the government would set up a scheme to assess whether there is justification for further one-off compensation payments for investors.

FCA chairman Charles Randell said the FCA was "profoundly sorry" for the mistakes it had made and admitted there were a number of things which it could have done better in its supervision of the Connaught case.

An FCA spokesperson said: “The speed with which the FCA responded to the challenges of the coronavirus crisis proved how we can respond nimbly and decisively to a rapidly changing landscape.

“This followed years of positive changes we made to the landscape to improve consumer choice and outcomes, including reforming the mortgage market and strengthening consumer protection in the consumer credit market - particularly for users of high-cost credit and credit cards.

“We’ve also taken vital enforcement action and in the three years to April 2020 we imposed financial penalties totalling more than £520m.

“We have already learnt considerable lessons from what happened with LC&F and Connaught and we will show clearly how we are implementing the recommendations made to us.

“The transformation programme, which is currently underway and is now continuing under the leadership of Nikhil Rathi, who joined as chief executive in October, is the right way to bolster trust in the FCA and realise our ambitions for change.”

amy.austin@ft.com

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