FCA accused of “unlawful” changes to LCF compensation scheme
The City regulator has been accused of trying to make “unlawful” changes to its compensation scheme for investors in collapsed mini-bond holder London Capital & Finance (LCF).
In June, more than 1,000 LCF investors complained about the Financial Conduct Authority’s (FCA) avoidance of compensation claims for victims of financial crime. The matter was then escalated to the Financial Regulators Complaints Commissioner.
The investors said the FCA’s “solely or primarily responsible” test, to determine whether compensation should be paid out, has no basis.
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Amerdeep Somal, the Financial Regulators Complaints’ Commissioner, has been investigating the FCA’s refusals to compensate all LCF bondholders.
A draft report of Somal’s preliminary findings, shared with The Observer, said the City regulator tried to make changes to its complaints scheme “via the backdoor” and the changes seemed to be in opposition to the FCA’s statutory purpose.
Gina Miller, from the True and Fair Campaign, which campaigns for better financial regulation, criticised the FCA’s “unlawful” changes to its compensation scheme.
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“The underhand manner in which the FCA set about changing their compensation scheme, required under the FSA 2012 is utterly shameful,” she said.
“By setting the bar at an impossibly high level, victims of scandals where the FCA’s own regulatory failures are a contributing factor, such as LCF and we believe Woodford, will never be compensated under this new scheme.
“We believe it is unlawful, should be immediately removed, and an urgent investigation launched at the FCA of how such a change could have been signed off.”
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“The statement we issued in June 2020 did not introduce any new test but instead set out our longstanding approach to offering payments in recognition of financial loss,” an FCA spokesperson said.
“There has been no change to the substance of the test and LCF complaints are being considered under the existing scheme.
“It has already been agreed that investors who have experienced losses as a result of the collapse of LCF are able to receive compensation from either the government compensation scheme or the Financial Services Compensation Scheme (FSCS).”
In October, Somal criticised the City regulator over its handling of the LCF scandal.
She said the City regulator should reconsider its decision on the payments and criticised its refusal to make public its approach to ex gratia payments it issues to people for distress and inconvenience as a result of delays to its complaints handling process.
The FSCS has already paid out £57.6m in redress to approximately 2,871 LCF customers which it believes had bad advice but has stopped short of further payments.
Separately to this, the FSCS will administer a £120m Treasury compensation scheme that will give LCF investors 80 per cent of their money back, up to a maximum of £68,000.
The FCA has until 16 November to respond to the Complaints Commissioner’s preliminary report.