The Treasury Committee today publishes responses from the
Treasury and the Financial Conduct Authority (FCA) to its Report
on the Financial Conduct Authority’s Regulation of London
Capital & Finance plc (LCF).
In December 2018, the FCA directed LCF to withdraw promotional
material for its ‘mini-bonds’, on the basis that they were
“misleading, not fair and unclear”.
The following month, LCF entered administration. Following a
request from the previous Committee, the Treasury agreed to a
request for an independent investigation into the collapse of
LCF.
Rt Hon. Dame Elizabeth Gloster DBE was appointed to lead the
investigation, the findings of which were published in December
2020. The Treasury Committee launched its inquiry into the FCA’s
regulation of LCF in February 2021 in order to consider Dame
Elizabeth’s findings, examine the changes that have been made
since the publication of her report, and to make further
recommendations to the FCA and HM Treasury.
Commenting on the responses, Rt. Hon. MP, Chair of the Treasury Committee, said:
"The collapse of London Capital and Finance (LCF) severely
impacted many investors and highlighted considerable regulatory
failings.
“It is therefore pleasing to see the Treasury and the FCA
engaging positively with our recommendations. However, as our
report highlights, it is not yet clear whether the Government
will include fraudulent advertisements within the scope of the
Online Safety Bill. To prevent fraud in the future, this is an
issue which must be addressed.
“We will continue to follow the FCA’s implementation of our
recommendations and their transformation programme closely."
This follows a joint letter from the
Chair of the Committee and Rt. Hon. MP, Chair of the Work and Pensions Committee, to the
Prime Minister, warning that the Government’s failure to
legislate against online fraud committed through paid-for adverts
risks ‘large financial losses to the public’. The Committee is
awaiting a response.
The Committee will also be looking to submit written evidence to
the Joint Committee on the Draft Online Safety Bill.
The Committee’s conclusions and
recommendations included:
- The FCA Board should set itself an end date for the
transformation programme and create milestones at which changes
in culture can be reviewed, which should be published.
- 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 welcomes the approach that HM Treasury has
taken to compensate LCF bondholders, which has struck a balance
between consumer responsibility and the FCA’s failings. If the
Compensation Bill passes through Parliament, HM Treasury should
ensure that eligible LCF bondholders receive payment as soon as
is practicable.
- 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.
- HM Treasury’s ongoing consultation on the regulation of
mini-bonds is welcome but the delay in its launch is noted. HM
Treasury should proceed with its analysis as soon as the
consultation closes, and publish the outcome by the end of
September 2021, setting a way forward that can be implemented
rapidly.
- The perimeter of regulation determines what the FCA can and
cannot regulate. The case of LCF illustrates how important it is
that the FCA looks at a regulated firm’s activities both within
and outside of the perimeter. The FCA should be given the power
to recommend changes to the perimeter of regulation formally to
HM Treasury.
