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Treasury Committee publishes Government and FCA responses to LCF Report

13 September 2021

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.

Chair's comments

Commenting on the responses, Rt. Hon. Mel Stride 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."

Failure to legislate against online fraud

This follows a joint letter from the Chair of the Committee and Rt. Hon. Stephen Timms 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.

Further information

Image: Albrecht Fietz from Pixabay