The Financial Conduct Authority (FCA) has apologised to investors in London Capital & Finance (LCF) after an independent review found that the regulator did not effectively supervise and regulate the minibond provider.
Charles Randell, chair of the FCA, said he was “profoundly sorry for the mistakes we have made” and promised to implement a number of new measures to protect consumers from similar harm in the future.
The review – conducted by Dame Elizabeth Gloster – made nine key recommendations to the FCA on how it should improve its internal authorisation and supervision processes.
These include better staff training, a more holistic approach to regulation, and the introduction of new anti-fraud policies.
Nikhil Rathi, chief executive of the FCA, said that the results of the review were “sobering”.
“My colleagues and I are committed to implementing the recommendations and lessons learned which will require significant and necessary changes to the way we regulate, our use of data and intelligence, and our culture,” he said.
“We know that the FCA must make faster and more effective decisions, prioritise the right outcomes for consumers, markets and firms, and reform our approach to intelligence and information sharing.
“Our continuing action plan, specifically on our wider transformation programme and high-risk consumer investments, seeks to do this.
“The FCA is always going to have to make difficult risk-based choices about where to allocate resources and to strike a balance between regulatory action and consumer choice and responsibility. I hope that the mistakes the FCA made in these cases do not detract from the work and dedication of my colleagues over several years.”
Over the next six months, Rathi said that the FCA will be restructured so that the policy, supervision and competition functions are joined up. The City watchdog will also hire a chief data, information and intelligence officer to improve its data handling.
It will also focus on tackling financial scams – particularly pension scams – and it will enhance training for all frontline staff.
Finally, under a new “use it or lose it” protocol, regulated firms that have not used their permissions to earn any regulated income for the last 12 months risk having their authorisation revoked.
“I would like to thank Dame Elizabeth for her work and welcome the FCA’s apology to LCF bondholders and their commitment to implement all of the report’s recommendations,” said the economic secretary to the Treasury, John Glen.
“LCF’s failure had a significant impact on the bondholders who have lost their hard-earned savings and the government will take forward the report’s recommendations to ensure our regulatory system maintains the trust of the consumers it is there to protect.
“Taking into account the various channels through which people affected can seek compensation, the government will also set up a scheme to assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders.”
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