The Treasury Committee has criticised the Financial Conduct Authority (FCA) for failings over its regulation of London Capital & Finance (LCF) and set out a number of recommendations.
The report said that the FCA must accept shared responsibility for its failings while holding regulated firms account for theirs.
The investigation into the collapsed mini-bond provider came as a result of an inquiry by the group of MPs launched on 1 February, and followed Dame Elizabeth Gloster’s report into the FCA’s handling of the LCF case.
As part of their enquiry, the ministers questioned Andrew Bailey, governor of the Bank of England and former FCA chief executive, as well as current FCA staff including: chair Charles Randell, chief executive Nikhil Rathi, senior adviser Jonathan Davidson and executive director of transformation Megan Butler.
They also questioned economic secretary to the Treasury John Glen MP and the Treasury’s director-general for financial services Katharine Braddick.
“We accept that a degree of shared responsibility is desirable and necessary in an organisation such as the FCA,” the report said.
“However, it is not readily justifiable for the FCA to require the firms that it regulates to adhere to the principles of the senior managers regime but seemingly not to apply similar principles internally when there are failings of practice and culture in the organisation.
“The FCA board should reflect on whether it has, in this case, met the standards which it seeks to impose upon others. We believe that there are doubts as to whether it has.”
The report criticised the FCA’s appointment of Megan Butler, who was previously head of supervision at the City watchdog and her department was criticised by the Gloster Report for ignoring and missing failings by LCF.
They said that they believe that the FCA was wrong not to have engaged in a fuller recruitment programme, that there was a missed opportunity to consider fresh leadership for the transformation programme and recommended taking a holistic approach to hiring for critical roles in future.
MPs welcomed the steps taken by the FCA to change its approach to financial promotions but said the regulator should be more “interventionist” and should make more frequent use of its powers rather than maintaining a “culture of risk aversion”.
The report said that the Treasury should prioritise revaluating the financial promotion order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers.
The MPs said the City regulator should ensure that it requires authorised firms to make clear explicitly the risks to customers associated with their unregulated activities.
They said in future, the FCA should set out in its annual perimeter report on how its supervisory strategies and policies reflect the activities of authorised firms both within and outside the perimeter.
Any changes to the perimeter must be matched with appropriate changes in the FCA’s resources, and the regulator should republish its priorities.
In addition, MPs welcomed the City regulator’s ongoing transformation programme which has led to some cultural changes, but recommended that the FCA board sets itself an end date for the programme and that it creates milestones, published in the public domain, at which improvements and evidence of changes in culture can be reviewed.
“We welcome the committee’s report and will be providing a formal response in due course,” an FCA spokesperson said.
“As we have said we are profoundly sorry for the mistakes we have made over LCF and are committed to implementing the recommendations of the Gloster Report which are progressing at pace.
“The FCA has embarked on a wide ranging transformation programme to build a data-led regulator able to make fast and effective decisions and we are providing the committee with updates on our progress.”