Financial Conduct Authority  

‘Heartbreaking’ bond scandal calls FCA powers into question

‘Heartbreaking’ bond scandal calls FCA powers into question

A BBC Panorama documentary about the Blackmore Bond scandal which lost investors a collective £46mn has raised fresh questions over the parameters of the Financial Conduct Authority’s powers. 

The Manchester-based mini-bond scheme collapsed in April 2020. It had promised investors interest payments of up to 10 per cent a year from a property portfolio it was supposed to build with the money.

Around 2,000 investors lost £46mn, despite being told their money was guaranteed up to £75,000 through an insurance scheme. One investor lost his entire military pension, while another family lost £40,000.

The company running the scheme was not, however, regulated by the FCA, and no individuals involved in the scandal were regulated by the City watchdog either.

The FCA was notified about Blackmore’s ‘boiler room tactics’ back in March 2017, according to the BBC. The regulator received 36 complaints about the firm through its complaints scheme after the firm collapsed.

FTAdviser understands The City of London Police was handed intelligence in relation to Blackmore by the FCA as early as 2017. The regulator also liaised with the Insolvency Service which initiated inquiries into the activities and operation of Blackmore, though no action was taken against the firm’s directors.

The FCA can only take action against firms or individuals which it regulates, and its powers are set by HM Treasury, rather than by itself.

What the FCA could do was take action against bogus mini-bond adverts. In March 2019, the regulator shut down the website of a firm which was promoting Blackmore products and withdrew its FCA approval.

Later that year, the regulator also used its product intervention powers to ban promotion of speculative mini-bonds to retail consumers from January 2020.

In the documentary, former Lloyds Banking Group forex trader and self-named 'whistleblower' Paul Carlier said the FCA “hung investors out to dry”, but the FCA and Pimfa have disputed accusations of inaction.

The FCA told FTAdviser: “We sympathise with investors who lost money through Blackmore. However, it is not true that we failed to act. 

“Our powers were limited as Blackmore was not a regulated firm and the issuing and distribution of mini-bonds isn’t a regulated activity. But we did take action where we could, including sharing intelligence with other agencies as early as 2017.”

Pimfa’s public affairs head Simon Harrington said the documentary was “heartbreaking” and “incredibly hard to watch”.

But he added: “It’s easy to paint a picture of the FCA asleep at the wheel, but that’s not 100 per cent the case. The bonds sat out of the regulatory perimeter.

“If you were a regulator, are you going to step outside your powers to address it? The FCA regulates a large universe. It does make sense that it might not act in a way we would like it to because it has to be proportionate and has finite resources.