The Treasury Committee has published a unanimously agreed report on FCA’s regulation of London Capital and Finance, in which it expresses the view that FCA cannot justify expecting firms it regulates to comply with the standards imposed by the SMCR yet not apparently apply similar principles internally. It criticised over-reliance on collective responsibility which it says can deny visible accountability and as a result lessen confidence in the organisation. It commented that the Gloster report had identified “a litany” of failings and highlighted numerous necessary changes.
Moreover, it criticises a missed opportunity to help prevent another similar event by the Government’s failure to address fraud via online advertising in the draft Online Safety Bill. It notes FCA did not have appropriate policies to allow it to intervene in LCF’s financial promotions, and says it must be more interventionist in the future. It also says the LCF case demonstrates how the “halo” effect of regulation can be very dangerous – and that FCA must look at a regulated firm’s activities both within and outside the regulatory perimeter. It says FCA must ensure authorised firms make clear to customer the risks of engaging with them in unregulated activities, and that it must be given power to make formal recommendations to Treasury on changes to the regulatory perimeter.
It does, however, welcome the Treasury’s approach to compensating bondholders.
The conclusions and recommendations in the report fall under 5 broad headings:
- individual responsibility of FCA senior management
- FCA culture
- the regulatory perimeter and the scope of FCA’s remit
- consumer responsibility and compensation and
- financial promotions
In each area, it comments on improvements already made and planned, as well as noting further work that could be necessary – such as reform for the Financial Promotion Order because of the increasing risks associated with the individual investor exemptions.