Source · Select Committees · Treasury Committee
Fourth Report - The Financial Conduct Authority’s Regulation of London Capital & Finance plc
Treasury Committee
HC 149
Published 24 June 2021
Recommendations
4
Para 43
We recommend that the default position should be that the FCA take a holistic approach...
Recommendation
We recommend that the default position should be that the FCA take a holistic approach when recruiting for critical roles, rather than engaging in a restricted recruitment process. For time-critical appointments, the FCA should consider appointing on an interim basis …
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HM Treasury
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12
Para 93
The “halo effect” appears to be inevitable as long as authorised firms also carry out...
Recommendation
The “halo effect” appears to be inevitable as long as authorised firms also carry out unregulated activities. We reiterate the recommendation made by our predecessors that the FCA should ensure that it requires authorised firms to make clear explicitly the …
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HM Treasury
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13
Para 94
In future, the FCA should set out in its annual perimeter report how its supervisory...
Recommendation
In future, the FCA should set out in its annual perimeter report how its supervisory strategies and policies reflect the activities of authorised firms both within and outside the perimeter.
HM Treasury
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16
Para 97
We therefore reiterate a recommendation made by a previous Treasury Committee, that the FCA be...
Recommendation
We therefore reiterate a recommendation made by a previous Treasury Committee, that the FCA be given the formal power and remit to be able to recommend formally to the Treasury changes to the perimeter of regulation, where that would enhance …
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HM Treasury
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18
Para 104
If the FCA Board were to set itself an end date for the transformation programme,...
Recommendation
If the FCA Board were to set itself an end date for the transformation programme, as we recommend in Chapter 2, the Treasury would have a clear indication of when to begin its consideration of the scope of the FCA’s remit.
HM Treasury
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19
Para 105
Any changes to the perimeter must be matched with appropriate changes in the FCA’s resources,...
Recommendation
Any changes to the perimeter must be matched with appropriate changes in the FCA’s resources, and the FCA should republish its priorities. The Treasury should publish a policy statement on how it will analyse changes to the FCA’s perimeter and …
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HM Treasury
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21
Para 123
The FCA should develop a strategy for how it will approach fraud risks that are...
Recommendation
The FCA should develop a strategy for how it will approach fraud risks that are outside the perimeter of regulation but involve authorised firms. That strategy should be set out in the next perimeter report.
HM Treasury
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29
Para 159
We note that there are other ongoing discussions and channels by which LCF bondholders can...
Recommendation
We note that there are other ongoing discussions and channels by which LCF bondholders can seek compensation, such as through the FCA complaints scheme 52 The Financial Conduct Authority’s Regulation of London Capital & Finance plc and through LCF administrators. …
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HM Treasury
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35
Para 190
It is very disappointing to see that despite the numerous representations made to the Government,...
Recommendation
It is very disappointing to see that despite the numerous representations made to the Government, measures to address fraud via online advertising have not been included in the draft Online Safety Bill. This is a missed opportunity to act and …
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HM Treasury
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37
Para 192
We recommend that the Government should include measures to address fraud via online advertising in...
Recommendation
We recommend that the Government should include measures to address fraud via online advertising in the Online Safety Bill, in the interests of preventing further harm to customers being offered fraudulent financial products.
HM Treasury
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Conclusions (28)
1
Conclusion
Para 31
It is not immediately clear that Mr Bailey’s concerns about the distinction between “responsibility” and “culpability” in Dame Elizabeth’s draft report would have “compelled” him to make his “free-standing” objection. However we accept that it is likely that his strong concerns over the “responsibility” vs “culpability” point may have led …
2
Conclusion
Para 41
We welcome the FCA’s approach to recruitment for some senior executive roles, which involved global searches, but we believe that the FCA was wrong not to have engaged in a fuller recruitment programme for the Executive Director for Transformation role, including the consideration of potential recruits from outside the FCA. …
3
Conclusion
Para 42
Given that Dame Elizabeth’s report cited Megan Butler as bearing responsibility for important areas of failure and that her recruitment was conducted internally with just one alternative candidate, we understand why many will feel that “a buck that does not stop with an individual stops nowhere” when it comes to …
5
Conclusion
Para 48
We accept that a degree of shared responsibility is desirable and necessary in an organisation such as the Financial Conduct Authority. 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 …
6
Conclusion
We recognise that the demands of some of these senior executive positions at the Financial Conduct Authority are heavy, and that individual accountability for organisational failings may deter strong candidates from applying for them. But an over-reliance on collective responsibility may deny visible accountability and could lessen confidence in the …
7
Conclusion
Para 63
The FCA plays a vital role as the UK’s financial conduct regulator and prudential regulator for most financial services firms. Its work affects millions of financial services customers and it is important that it has the right culture to facilitate its objectives. We support the views of the current FCA …
8
Conclusion
Para 64
We welcome the FCA’s ongoing transformation programme which has cultural change as one of its priorities. We however note that the FCA has undergone numerous structural and operational changes since its inception, with more changes expected as part of the ongoing transformation. We recognise that culture change takes time but …
9
Conclusion
Para 75
The FCA accepts that there were failings in the contact centre during the Relevant Period as identified in Dame Elizabeth’s report, and has begun taking steps to address these. We welcome the operational improvements that have been made since the publication of Dame Elizabeth’s report, including the training of call-handlers …
10
Conclusion
The FCA should ensure that it keeps its contact centre policies and training up to date to ensure clarity and consistency, not just in relation to firms such as LCF but to the wider organisation. (Paragraph 76) The regulatory perimeter and the scope of the FCA’s remit
11
Conclusion
The case of LCF illustrates how important it is that the FCA looks at a regulated firm’s activities both within and outside the perimeter of regulation. The FCA’s failure to consider issues raised in LCF’s unregulated bond business led to red flags being missed. (Paragraph 92) 50 The Financial Conduct …
14
Conclusion
Para 95
The perimeter is complex, and while the FCA has some limited powers to act beyond the perimeter, it does not have the remit to actively monitor or intervene outside the perimeter. We recognise the need for the FCA to make prioritisation decisions as its resources are finite.
15
Conclusion
Para 96
We welcome the ongoing dialogue between the Treasury, the FCA, and other financial regulators on the perimeter, but the failings in the FCA’s regulation of LCF and constant movement of the perimeter are signs that further action is required.
17
Conclusion
Para 103
Both the FCA and the Treasury accept that the scope of the FCA’s remit is broad and continues to increase. The breadth of the scope has had some operational impacts on the FCA’s ability to carry out its work. We note that the Treasury’s intention is to consider the scope …
20
Conclusion
The FCA recognises that it has a statutory duty to protect customers from fraud. In the case of LCF, the regulator fell short, due to a culture that saw fraud as principally a matter for the police, and its lack of enthusiasm to look beyond the perimeter. Dame Elizabeth recommended …
22
Conclusion
Para 124
The FCA’s work to prevent fraud is done in partnership with other bodies such as the National Crime Agency and Serious Fraud Office. But the police have limited resources and personnel devoted to tackling fraud, and the FCA currently does not have the full powers of a law enforcement body.
23
Conclusion
Para 125
There may be scope for the Government to consider whether the FCA should be given more powers to enable it to investigate fraud and financial crime. We will continue to consider this as part of our Economic Crime inquiry.
24
Conclusion
Para 138
The unusual way in which LCF used mini-bonds and the high level of risk associated with any such investments highlight the need for the Treasury’s intervention. We welcome the Treasury’s ongoing consultation on the regulation of non-transferable debt securities but note the delay in its launch.
25
Conclusion
In light of the recent failings of several mini-bond issuers and the nature of the existing regulatory arrangements, the Treasury should proceed with its analysis as soon as the consultation on the regulation of non-transferable debt securities closes, and it should aim to publish the outcome by the end of …
26
Conclusion
Para 145
The FCA should consider how it can improve its customer information so as to help equip customers with the ability to deal with the important financial decisions that they will have to take, and the risks that are attached to those decisions.
27
Conclusion
Para 157
The collapse of LCF brought about a huge degree of uncertainty for bondholders, some of whom were faced with an anxious wait for the publication of Dame Elizabeth’s report and further details of the Government’s compensation scheme. We welcome the approach that the Treasury has taken to compensate LCF bondholders, …
28
Conclusion
Para 158
The Government has taken a positive step by introducing the primary legislation necessary to establish the LCF compensation scheme. If the Bill has a successful passage through Parliament, the Treasury should ensure a smooth running of the compensation scheme, without any further delays, making sure that eligible LCF bondholders are …
30
Conclusion
The FCA should provide us with an update on its resolution of LCF complaints by 30 September 2021. (Paragraph 160) Financial promotions
31
Conclusion
Para 167
We welcome the Treasury’s ongoing consultation on approving financial promotions. We trust that the results of the consultation will be published swiftly and the conclusions implemented as soon as possible.
32
Conclusion
Para 173
We welcome the steps taken by the FCA to change its approach to financial promotions, as well as introducing the “use it or lose it” programme. In future, the FCA should be more interventionist and should make more frequent use of its powers rather than maintaining a culture of risk …
33
Conclusion
Para 179
The Financial Promotion Order would benefit from reform due to the increasing risks associated with the exemptions that allow customers to self-certify as high net worth or sophisticated.
34
Conclusion
Para 180
The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers.
36
Conclusion
Para 191
We note the Government’s intention to consider additional legislative and non- legislative solutions to tackle fraud via advertising, emails or cloned websites, including the online advertising programme, but we believe quicker action is required to protect consumers and help the FCA address the issue adequately.
38
Conclusion
Pending any legislative changes, the FCA should continue to work with online platforms such as Google to remove misleading and fraudulent adverts as quickly as possible, to protect customers from scams. (Paragraph 193) The Financial Conduct Authority’s Regulation of London Capital & Finance plc 53