The ramifications of the now-collapsed mini-bond investment firm London Capital & Finance are still being felt across the City. As the Treasury Committee scrutinises what led thousands of investors to lose money, Financial News looks back at the scandal’s beginnings.
London Capital & Finance went into administration in January 2019 after the Financial Conduct Authority asked it to withdraw its “misleading, not fair and unclear” promotion for its retail investment products. The firm issued mini-bonds, which are not normally regulated by the FCA.
Some 11,600 retail investors in risky “mini-bonds” lost out after LCF collapsed, totalling more than £237m. Since then, the promotion of mini-bonds has been banned by the FCA.
December 2020: ‘Serious failings’ over FCA’s regulation
An independent investigation, published on 17 December 2020, by former High Court judge Dame Elizabeth Gloster found that there were “serious failings” over how the FCA regulated LCF. These included the FCA not acting on specific and detailed allegations about LCF made to the regulator by third parties.
Following the publication of the report, the FCA said in response: “London Capital & Finance’s collapse has had a profound impact on the lives of many individuals who invested money they could not afford to lose. We are very sorry for the errors we made in our handling of this case.”
Governor of the Bank of England and former head of the FCA Andrew Bailey also issued an apology to LCF bondholders after the publication of the report. He said that despite a “substantial reform programme” to the supervision of firms that took place under his watch, he was “sorry those changes did not come in time” for investors.
On 22 December, the All-Party Parliamentary Group on Personal Banking and Fairer Financial Services called for a parliamentary debate to discuss shortcomings at the FCA following Gloster’s report.
Peter Gibson, Conservative MP and chair of the group, said: “Parliament has given the FCA clear statutory objectives, which include protecting consumers from harm.”
“It’s all well and good having an apology from the FCA’s current chair, Charles Randell, and the former chief executive, Andrew Bailey, for what the FCA has done, or more accurately for what it has failed to do; but what we actually need is a timely and targeted transformation aimed at ensuring we have a conduct regulator that works – it’s obvious to all observers that we don’t yet have that.”
READ MPs call for parliamentary debate over FCA failings
2 February 2021: FCA and Treasury should ‘consider’ action
As part of its inquiry into the FCA’s regulation of LCF, during a Treasury Committee evidence session on 2 February, Gloster said that the FCA and the Treasury should “consider” action following the criticism made of Bailey in her report.
“I do think it’s a matter to which consideration should be given – not by me but by the chairman and CEO of the FCA and the Treasury in so far as the Bank of England is concerned – as to what they consider is appropriate to do in light of the serious criticism and conclusions I have made,” Gloster told the groups of MPs.
Gloster also said that Bailey had inherited a difficult situation when he headed up the regulator. However, that did not excuse his overall failure to regulate the investment fund, she added.
READ Andrew Bailey criticised for FCA’s failure over LCF collapse
8 February 2021: FCA was a ‘broken machine’
On 8 February, Bailey gave evidence to the Treasury Committee, saying that there were no easy fixes for the collapse of the firm because the regulator was a “broken machine”.
Bailey said that one of the issues faced was that “we inherited no system for extracting information out of the contact centre”, which had received over 600 calls reporting suspicious of fraud and were not acted upon.
“I’m probably sounding quite angry now because I am,” Bailey told the Treasury Committee.
READ. Andrew Bailey: No easy fixes for London Capital & Finance since FCA was a ‘broken machine’
Next steps?
On 1 March, the current chief executive of the FCA, Nikhil Rathi, will be speaking in front of the group of MPs, alongside Randell.
According to the Committee’s announcement, it will focus on individual responsibility of senior management in regulating LCF and how the FCA will address the recommendations from Gloster’s report.
To contact the author of this story with feedback or news, email Bérengère Sim