City watchdog: LCF scandal was ‘unfortunate’ for victims

The head of the Financial Conduct Authority watchdog on Wednesday spoke for the first time about the London Capital & Finance scandal for which his organisation has been widely criticised, but fell short of accepting responsibility.

“It is extremely unfortunate for those involved,” he said. “We must look at what we did and didn’t do.”

LCF collapsed earlier this year after raising £267 million from 11,700 investors, many of whom were elderly and now stand to lose their life savings.

The FCA has been criticised for missing multiple warning signs.

The Serious Fraud Office is investigating LCF — four people have been arrested and released. The firm is regulated by the FCA but the products it sold — marketed as fixed-rate Isas offering high returns — were not. Bailey today said this was an issue that needs examining.

After calls from the Treasury Select Committee, the Treasury has ordered the FCA to launch an independent investigation into the scandal.

Victims include a 50-year-old woman who saved £21,000 over ten years and invested it with LCF for her autistic son. Tom McPhail, head of policy at Hargreaves Lansdown, said: “The FCA’s enforcement team doesn’t always appear to act with the alacrity people expect when risks of financial scams and fraud surface.

“Many have suggested this was the case with LCF, with legitimate advisers raising concerns with the FCA about the firm quite early on in its existence, and this hasn’t been the only case of this nature.

The FCA’s planned review of investment fraud could include a question of whether its rapid response activity is entirely rapid enough.”

Bailey was speaking as he launched the FCA’s business plan for the 2019-2010 year in which he said the regulator would extend its senior management and certification regime. Currently, that only covers banks and insurers, but the new plan will see it extended to all firms. Bailey said this should avoid what has been dubbed the “Murder on the Orient Express” defence, where managers argue failures weren’t their own, but everybody’s, leaving no-one held to account.

The FCA’s budget for the year is rising by 2% to £538 million.

Bailey said Brexit is the most immediate challenge it faces. It intends to ask the Treasury to extend its enforcement powers in the crypto-currency sector.