"A more agile, engaged and decisive regulator could have prevented the losses suffered by thousands of consumers as a result of what happened with LCF"
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.
The FCA has the powers to intervene in respect of breaches to financial promotions rules and can ban a promotion. In the case of LCF, 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.
The Committee's new report says the FCA needs to become a more “proactive”, “agile”, “decisive”, and joined-up regulator.
The Committee said: "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 report raised doubts as to whether the FCA Board meets the standards "which it seeks to impose on others".
Committee members said they were also disappointed that measures to address fraud via online advertising have not been included in the draft Online Safety Bill, stating it is "a missed opportunity to help prevent another LCF-type event".
Mel Stride MP, Chair of the Treasury Committee, commented: “The collapse of LCF is one of the largest conduct regulatory failures in decades.
“Dame Elizabeth Gloster identified a litany of failings at the FCA regarding its regulation of LCF, and highlighted a range of changes needed at the FCA under its new leadership.
“The Treasury Committee has made some further recommendations for the regulator and the Government to help prevent another LCF.
Tim Fassam, director of government relations and policy at trade body PIMFA, added: "Today’s Treasury Select Committee report calling for a change in culture at the FCA is welcome and echoes many of the recommendations PIMFA has previously made, particularly through our Future of Supervision and Future of Regulation policy papers.
"Our industry called on the FCA to act over London Capital & Finance repeatedly. A more agile, engaged and decisive regulator could have prevented the losses suffered by thousands of consumers as a result of what happened with LCF and it is encouraging that the current senior leadership of the FCA recognises. But as the Treasury Select Committee says in its report, the FCA must set milestones for change to be achieved.
"We also agree with the Treasury Select Committee that it is disappointing measures to address fraud via online advertising have not been included in the draft Online Safety Bill, something which PIMFA has campaigned for, and will continue to campaign for. As the Treasury Select Committee, rightly in our view, states this is a missed opportunity to prevent another LCF-type event in the future."
An FCA spokesperson responded: "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.
"We agree with the recommendation that fraud via online advertising should be included in the Online Safety Bill, as online platforms are now the single biggest channel of financial scams and fraud."
