The complaints commissioner has hit out again at the FCA over the state of its register, saying it gave investors caught up in a mini-bond scandal the wrong impression about what they were investing in.
In her final report on the FCA’s oversight of London Capital & Finance, Amerdeep Somal said she had “significant concerns” about the register, which she said led investors into erroneously thinking they were investing in a safe product.
“Based on everything I have looked at…it is difficult for me to see that the register could not have given investors the wrong impression,” she said.
Somal urged the FCA to “seriously consider” amending the warning message on its register by making it simple and concise for investors to understand the risks involved.
The regulator did not accept that the register was misleading.
“I am not sure why the FCA will not provide the same clear content in its warning message in its register...I urge the FCA to reconsider my recommendation…it is important the FCA recognise this and make amendments to its register,” Somal said.
This is not the first time the complaints commissioner has criticised the FCA's register.
An FCA spokesperson said: “We have received the report. We will respond to the Complaints Commissioner and publish that response by the deadline [March 15].”
In 2017 Somal's predecessor ordered the FCA to pay an adviser £1,500 after its register gave the inaccurate impression they were directors of a firm which had been censured.
Following this case, the FCA committed to a review of the way its register is designed to make it more flexible.
Since then the FCA has come under fire on more than one occasion for the inaccuracy of its register.
Most recently in 2021 the the commissioner upheld in part a complaint which alleged the FCA's register of financial services firms had shown a firm as an active company years after it was wound up.
Regulatory failings
The report looked into the regulator’s handling of the LCF scandal, which saw retail investors lose more than £230mn when the firm collapsed in 2019, putting the funds of some 14,000 bondholders at risk.
The scandal was dubbed one of the “largest regulatory failures in decades” at the time.
LCF was regulated by the FCA, but certain investments it provided were not.
The commissioner said the FCA’s register of authorised companies gave the "wrong impression" which led to investors believing LCF was a reputable firm - which led in turn to the impression investors were buying a regulated product which was protected by the Financial Ombudsman Service and Financial Services Compensation Scheme.
This “halo effect” was mentioned by Dame Elizabeth Gloster in her report on the scandal.
Somal said of the Gloster report: “Whilst [the report] did not specifically make a finding on the register being ‘misleading’, it cannot be ignored the extent to which the Gloster report determined that the register was deficient and failed to present information in an intelligible manner.”
She said there were no warnings displayed about the risks of unregulated products, and investors were not alerted to the potential issues until FCA chairperson Charles Randell warned investors about “putting all their eggs in one high risk basket” in September 2019.
In her report, Somal urged the FCA to publicly release its guide to “good will” sums offered to complainants.
She said she had received a number of complaints relating to the FCA’s approach to calculating ex gratia payments, including the delay in reaching a view and the lack of clarity of the algorithm used for calculating the payments.
“I understand why complainants would be curious about the FCA’s approach to ex gratia payments for complaint delays.
“In the interests of transparency and for the benefit of complainants, I believe that this guide is something that should be publicly available, such as on the FCA website – currently it is not,” she said.
Somal added that the FCA disagreed with this request - and she disagreed with that.
The report also highlighted how in 2015 the FCA paid compensation to a complainant company who alleged a loss of business because the regulator had “erroneously” listed the company on the FCA’s ‘warnings’ webpage, indicating it was unregulated when it was a genuine firm.
sally.hickey@ft.com