FCA faces probe over London Capital & Finance

The Treasury has ordered the Financial Conduct Authority (FCA) to conduct an independent investigation into events at London Capital & Finance (LC&F) and the circumstances surrounding the savings company’s collapse

In January LC&F went into administration, after taking £236m of investors’ money. This followed concerns raised by the FCA in December 2018, when the regulator directed the company withdraw its promotional material for its mini bonds on the basis that the marketing was ‘misleading, not fair and unclear’.

The Treasury select committee raised a number of queries about the FCA’s handling of the collapse. Whilst the promotional material is regulated by the FCA, the product itself—mini-bonds—are unregulated.

Last month Nicky Morgan, chair of the Treasury committee, wrote to the FCA board to request that it consider whether the tests around the need for a statutory investigation into possible regulatory failure surrounding LC&F have been met.

Morgan said: ‘The decision by the Treasury to use its powers to direct the FCA to commission a review into LC&F is therefore welcome.

‘The committee will query why the FCA required the Treasury’s help to commission an investigation.

‘The FCA and the Treasury must think innovatively about how the investigation can report and publish as quickly as possible. Investors will want answers.

‘It is entirely possible that other firms are offering products to investors under the guise of FCA regulation, which may not be wholly the case. The committee will want assurances the FCA is guarding against a similar outcome for other unsuspecting investors.’

The investigation will be led by an independent person appointed by the FCA, with the approval of the Treasury.

Information about the detailed terms of reference of the review and identity of the independent reviewer will be published when it is available. The FCA has indicated the investigation should cover questions in two areas: whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm; and the FCA’s supervision of LC&F.

Separately, the FCA had already started an investigation into LC&F’s financial promotions. The Serious Fraud Office, working in conjunction with the FCA, has also opened an investigation into individuals associated with LC&F.

John Glen, economic secretary to the Treasury, said: ‘The recent stories of those affected by the collapse of LC&F are incredibly concerning

‘I want to make sure we have the strongest and safest financial system possible. By ordering this investigation, we will better understand the circumstances around the collapse and make sure we are properly protecting those who invest their money in the future.’

Report by Pat Sweet

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