"The policy itself can provide no consistency at all for that group. It therefore does not even meet its own stated aim."
Over 11,000 people invested a total of £237m with LCF before it collapsed into administration. Although LCF was FCA-approved, its high-risk mini-bond products were unregulated.
In her 237 page report the Commissioner, Amerdeep Somal, says "the FCA's approach to compensation in the LCF cases is unjustified and does not stand up to scrutiny".
Somal added that the fact that the FCA could not even give the Commissioner an example of when a payment would be made is “perverse”.
The FCA's Remedies Statement provides that it will only provide compensation for financial loss in respect of its actions or inaction where it is the "sole or primary cause of the loss".
Yet, in an announcement in April 2021, the FCA stated: "While we do not believe this [the FCA’s failings] was the primary cause of these investors’ losses, those direct communications may have been a factor in their decision to invest, or to remain invested. While each case will be given individual consideration, given the exceptional circumstances the FCA intends to offer ex gratia payments to the small number of investors who fall into this category who have not already been compensated by the FSCS."
Thus, Somal found that the FCA "does not accept that it was the sole or primary cause of the losses even of those investors to whom it provided incorrect information via direct communications".
She said that "if the FCA will only make payments to consumers in exceptional circumstances which are outside the terms of the policy which is intended to provide consistency, then the policy itself can provide no consistency at all for that group. It therefore does not even meet its own stated aim".
She added: "If consumers who were directly provided with incorrect information in the already exceptional circumstances identified in the Gloster Report would not qualify under the Remedies Statement for an ex gratia compensatory payment arising from regulatory and supervisory failings, then it is difficult to envisage who would.
"The de facto position appears to be that the ex gratia compensatory payments arising from regulatory and supervisory failings will never be available in practice."
In 2021, MPs questioned whether FCA met its own regulatory standards during LCF scandal, with the Treasury Select Committee calling for a change in culture at the FCA to protect consumers and financial markets.
The Select Committee concluded that the FCA "did not have appropriate policies to allow it to intervene in LCF’s financial promotions breaches". It recommends that the FCA should be "more interventionist" and should make more frequent use of its powers rather than maintaining a culture of risk aversion.
Gina Miller from the True and Fair Campaign, commented: “This report leaves the FCA in a difficult position: their diversion tactics are now laid bare for all to see, and I cannot see how they can justify the Remedies Statement now.
“It is a damming indictment of the entire FCA Board that it sought to reduce the rights of the public to seek compensation from the FCA for regulatory failure in such an underhand manner.
“This report should be the final straw that leads to the Treasury stepping in and ordering a proper Kingman style independent review of the FCA.”
An FCA spokesperson said: “We have received the report. We will respond to the Complaints Commissioner and publish that response by the deadline.”
