Regulation  

LCF branded 'one of largest conduct regulatory failures in decades'

LCF branded 'one of largest conduct regulatory failures in decades'

The Treasury committee has labelled the Financial Conduct Authority’s handling of London Capital and Finance as “one of the largest conduct regulatory failures in decades”.

In a report published today (June 24), it urged the FCA to implement a change in culture to protect consumers and financial markets.

The MPs argued there was an “over-reliance on collective responsibility” at the regulator which might "deny visible accountability".

They said: "It is not readily justifiable for the FCA to require the firms that it regulates to adhere to the principles of the Senior Managers Regime but seemingly not to apply similar principles internally when there are failings of practice and culture in the organisation.

"There are doubts as to whether the FCA board has met the standards which it seeks to impose on others.

"An over-reliance on collective responsibility may deny visible accountability and could lessen confidence in the organisation as a result."

The report comes following an independent investigation into the FCA’s handling of LCF by Dame Elizabeth Gloster, published in December last year.

Gloster rebuked the regulator for "significant gaps and weaknesses" in its policies and practices and said the watchdog had failed to properly regulate the now collapsed company and that its handling of information from third parties regarding the business was "wholly deficient".

Following this the Treasury committee launched its own inquiry into the FCA’s regulation of LCF in February 2021 in order to examine the changes that have been made since the publication of her report, and to make further recommendations to the FCA and HM Treasury. 

The whole saga dates back to December 2018, when the regulator directed LCF to withdraw its promotional material for mini-bonds as it was “misleading, not fair and unclear” and the following month, LCF entered administration.

In their report the MPs also said it was “disappointing” that measures to address fraud via online advertising have not been included in the draft Online Safety Bill. 

Last month, the government announced measures to tackle some online scams in the bill but stopped short of including fraud via advertising, emails or cloned websites.

The Treasury committee said: “This is a missed opportunity to help prevent another LCF-type event. 

“The government must intervene urgently to include measures to address fraud via online advertising in the Online Safety Bill to prevent further harm to customers being offered fraudulent financial products.”

The committee also urged the FCA to intervene and ban a financial promotion where it breaches its rules.

It said: “In the case of LCF, the FCA did not have appropriate policies to allow it to intervene in LCF’s financial promotions breaches. 

“In future, the FCA should be more interventionist and should make more frequent use of its powers rather than maintaining a culture of risk aversion.”

The report added the committee supports the views of the current FCA leadership that the organisation needs to become a more “proactive”, “agile”, “decisive”, and joined-up regulator that is willing to act to protect consumers and financial markets.