The Financial Conduct Authority has been heavily cricitised for its attempts to keep the names of three of its directors out of a damning report into its supervision of scandal-embroiled London Capital & Finance.
Speaking to the Treasury Committee in an evidence session yesterday (February 1) Dame Elizabeth Gloster said she might have been "quite irritated" and "quite surprised" at FCA requests in the form of legal submissions to exclude the names of Andrew Bailey and two other directors from her final investigation.
Treasury Committee chairman Mel Stride asked the former Court of Appeal judge, who led the investigation into the regulator's role in the scandal, if the FCA was an institute which was trying to "ease the pressure" of the investigation on itself.
Dame Elizabeth said: "It seemed to me that it was inappropriate in quite a serious way to try and suggest to me as part of the legal...process that their names shouldn't be mentioned.
"Those representations were made in legal submissions by the FCA and the three senior directors I named.
"I was surprised that neither of the three individuals didn't suggest to their lawyers that wouldn't go down very well. It is a lack of judgement to put forward that representation."
She added that her report had not looked at "any allegations of impropriety or lack of integrity", rather a failure of regulation.
Dame Elizabeth said she took the concept of responsibility "very seriously" and found it appropriate to apportion it to the individuals, namely Mr Bailey, Megan Butler and Jonathan Davidson.
She said: "The FCA itself requires firms it authorises to have Senior Managers & Certification Regime statements, so that when something goes wrong it is clear who bears responsibility.
"And the FCA in 2016 published a document applying those fundamental principles of the SMCR to itself. That being so...I thought it was indeed appropriate to attribute responsibility, without going into the legal issues."
Dame Elizabeth's review found the City watchdog had failed to properly regulate the now collapsed company and warned its handling of information from third parties regarding the business was "wholly deficient".
Both the FCA and Mr Bailey issued an apology following the publication of the report at the end of last year.
In his apology the former chief executive, and now governor of the Bank of England, said the FCA had taken "immediate steps" to change its approach but he was "sorry these did not come in time for LCF bondholders".
Speaking with MPs yesterday Dame Elizabeth said whilst Mr Bailey was right to say "inherited a difficult situation", the apology did not "really address the problem" and did not provide an "adequate excuse" for the regulator's failures.
Yesterday's evidence session was the first in the Treasury Committee's investigation into the FCA's oversight of London Capital & Finance, with Mr Bailey expected to appear in front of MPs to face questions next week.
Off the cuff advice
MPs also heard there was not "clear information" within the FCA as to how its contact centre should process and refer information about potentially dangerous companies.
Dame Elizabeth said: "It is very important that contact centre call handlers should not reassure consumers about the activities that are not regulated of authorised firms.
"There must be clearer instructions for call handlers that they don't give off-the-cuff advice or so-called advice."
Dame Elizabeth said if there had been a "joined up system" between the call centre and the FCA's handling of financial promotion breaches under its watch "things would have been very different".
She warned it was "pretty appalling" that consumer concerns heard by the regulator's own contact centre regarding the company had not been "escalated appropriately".
"Wickedness"
The Treasury Committee was told how the scandal-embroiled London Capital & Finance was repeatedly allowed to breach financial promotion rules under the FCA's watch despite repeated reports from consumers.
Dame Elizabeth added: "Although the FCA had a repeated financial promotions policy, it wasn't sufficiently robust.
"One of the real wickednesses is LCF was frequently breaching the financial promotions rules and nothing was done about it.
"If that information had been put together with other information, something might have been done much earlier."
HM Treasury first requested the independent LCF 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.
Dame Elizabeth's investigation concluded bondholders were "entitled to expect, and receive, more protection from the regulatory regime in relation to an FCA authorised firm than that which, in fact, was delivered by the FCA".
It also warned the permissions granted to the company were not appropriate for the business it carried out and the FCA had not "adequately supervised" London Capital & Finance's compliance with the regulator's own rules.
The FCA has since apologised for its actions, with chairman Charles Randell admitting there were a "number of things" it could have done better in its supervision of the company.
rachel.mortimer@ft.com
