So who is accountable for the FCA’s failures over LCF?

Reading the Treasury commissioned report on London Capital and Finance by Dame Elizabeth Gloster was harrowing. Reading the FCA’s response was worse – two days after attending a superb event that asked if our primary regulator is doing its job, my previously held belief that the FCA is fit for purpose has been shaken

The dual purpose Lord Prem Sekka spoke of was to both promote UK financial services and protect the public from bad practice. In the case of LCF, the FCA has failed on both accounts, allowing a major scandal to happen in Britain and for its perpetrators to do so , seemingly with the FCA’s blessing. Although the activities that have lost investors around £237m were conducted “outside the FCA’s “regulatory perimeter”, all the financial promotions made by LCF relied on LCF being an FCA regulated business for their credibility. The Gloster report states clearly that the FCA was wrong and that the losses incurred by bondholders would have been much smaller had the FCA behaved correctly,

When whistleblowers tried to warn the FCA , years before the balloon went up, they were dismissed by FCA senior managers and no action taken. When Elizabeth Gloster asked for the papers that the FCA had on the case, she was repeatedly obstructed by being given information which was wrong or by being denied information altogether. This delayed the publication of the report by months. In the meantime, Andrew Bailey, the then CEO of the FCA has slipped away , promoted to the post of Governor of the Bank of England.

The full catalogue of failures by the FCA is listed at the end of this article. But none of these failings matters so much as the failure of the FCA to accept that the blame for this rests with the key individuals within the FCA.

Who was to blame?

Alfred Tennyson’s famous question for the carnage at Balaclava , rings out through the report and is answered by what will doubtless become the report’s defining statement

“Responsibility for the failure in respect of the FCA’s approach to its Perimeter rests with ExCo and Mr Bailey,”

The most frightening section of the whole report comes at the beginning and deals with the objections the FCA had to the report pointing fingers at the ExCo and Mr Bailey.

A number of participants in the representations process asked the Investigation not to make findings about individual responsibility for the FCA’s deficiencies in regulating LCF. For example, the Investigation was asked “to delete references to “responsibility” resting with specific identified/identifiable individuals”.

Similarly, the Investigation was told that criticism of senior managers who were recruited to overcome structural, cultural or institutional difficulties was “likely to have the undesirable consequence of discouraging people from taking on and tackling difficult and vital roles

The findings in this Report are certainly not intended to have that effect. In any case, it is difficult to see why an individuals’ willingness to take on challenging tasks in public bodies should absolve them from accountability.

A further comment was that “it is neither necessary nor… appropriate for individuals to be identified as bearing
particular responsibility for the matters which are the subject of the criticisms in the draft Report”.

The Investigation does not agree with these suggestions for the reasons set out below.

First, it was represented to the Investigation that there was “an inherent ambiguity” in the use of the word “responsibility” For the avoidance of doubt, the findings of individual
responsibility in this Report are not conclusions about the personal culpability of any individuals or groups of individuals.

In particular, the fact that the Investigation has
identified an individual as being responsible for one aspect of the FCA’s deficient regulation of LCF does not necessarily mean that the individual had specific knowledge of the relevant
problem(s), or that the individual failed to take reasonable steps to address them.

The Investigation has not made findings about personal culpability (as opposed to responsibility)
because it has not found it necessary to do so in order to answer the questions put to it. …. It follows that the Investigation has also not made findings about whether there was
any causal connection between the actions or omissions of specific individuals within the FCA and losses suffered by Bondholders.

In this Report, the term “responsibility” is used
in the sense in which that term is employed in the FCA Statements of Responsibility and the FCA Management Responsibilities Map. In short, it refers to a sphere of activities or functions of the FCA for which a senior manager bears ultimate accountability.

Second, it was said that the scope of the Investigation “does not require the attribution of “responsibility” to particular individuals within the FCA, but rather is directed at whether
the FCA (as an organisation)” discharged its functions.

The Investigation disagrees. Addressing responsibility of the senior management of the FCA for its failures in regulating LCF is well within the remit of the Investigation:
(a) The Direction asked the FCA to appoint an independent person to investigate the “circumstances surrounding”
“the supervision of LCF by the FCA”. These
“circumstances” plainly include the role that senior individuals within the FCA played in supervising LCF.

Moreover, paragraph 3(2) of the Direction provides that “the Investigator may also consider any other matters which they deem relevant to the question of whether the FCA discharged its functions in a manner which enabled it to effectively fulfil its statutory objectives”.

For the reasons provided in paragraphs below, accountability of the FCA’s senior management is a matter relevant to whether the FCA effectively fulfilled its statutory objectives in relation to LCF.

Third, it was suggested that since “investigations of this type are generally directed at identifying “lessons learned” following a high-profile financial failure, it is normal for such
investigations to focus on identifying institutional rather than individual failures”.

As to this, the Investigation is required not to identify publicly FCA employees below Director-level. This Report does not do so.
The primary role of the Investigation is not to identify the “lessons learned”…,that is a matter for the FCA. As
explained above, the key question for the Investigation is whether the FCA effectively fulfilled its regulatory responsibilities in respect of LCF.

It is also not correct to say that investigations of this nature are required to focus exclusively on institutional, rather than individual, failure. The following observations of the Treasury Committee in relation to the Davis Inquiry Report’s 100 findings about the FCA are instructive in this regard:101

“Simon Davis reached conclusions about the responsibility of certain individuals for the events of the 27 and 28 March. However, it is not clear from his report where individual responsibility lies for the failures of the FCA’s Executive Committee and Board. Instead, he concludes that the Board and the Executive Committee are collectively responsible for their respective failures.

This is a well-rehearsed and unfortunate mantra. The Committee has heard it often from regulated firms, and particularly banks. One of the key conclusions
of the Parliamentary Commission on Banking Standards was that “a buck that does not stop with an individual stops nowhere”….  

Mr Davis should have paid closer attention to individual responsibility in reaching his conclusions.”

Fourth, it was suggested that “no benefit arises (and the… report’s findings and conclusions are not strengthened) by the attribution of responsibility to particular individuals”.102 This
assertion is inconsistent with the FCA’s own approach to the public accountability of its senior management:

In March 2015, the Treasury Committee recommended that the FCA publish a ‘Responsibilities Map’ allocating responsibilities to individuals within the FCA.

The Committee stated that the FCA’s allocation of individual responsibility should be compliant, as far as possible, with the Senior Managers Regime that the FCA and PRA apply to banks

In 2016, the FCA published a document applying the fundamental principles of the Senior Management Regime to the FCA’s senior staff contained the ‘FCA Statements of Responsibility’ and the ‘FCA Management Responsibilities Map’.

It states that the FCA’s “senior management should meet standards of professional conduct as exacting as those we require from regulated firms” and “reaffirm[ed]… the FCA’s commitment to individual accountability”.

The FCA’s policy regarding the public accountability of its senior management is also reflected in paragraph 24 of the Protocol for this Investigation, which states that “[i]t is the policy of the FCA that employees at Director and above should be
publicly accountable for the FCA’s performance…”

For these reasons, the Investigation considers that it would have been inappropriate for it not to have made findings about the responsibility of the FCA’s senior management for the
deficiencies in the FCA’s regulation of LCF.

Having read the FCA’s response to the Gloster report,I get no sense that those on the ExCo or the new CEO have taken responsibility for the failings of the FCA. Some of the current ExCo were members of it through the period though most have now resigned. While the Senior Managers Regime is now in place for all regulated firms, the core principles by which managers (including me) agree to , are still being ducked by the people we’ve agreed them with.

This is why I wrote this tweet yesterday

And it’s why my position with regards the FCA’s credibility as my Regulator has been shaken.


The nine recommendations of the Gloster report  which found the FCA failed LCF bondholders.

Recommendation 1: the FCA should direct staff responsible for authorising
and supervising firms, in appropriate circumstances, to consider a firm’s
business holistically

Recommendation 2: the FCA should ensure that its Contact Centre policies clearly
state that call-handlers: (i) should refer allegations of fraud or serious irregularity
to the Supervision Division, even when the allegations concern the non-regulated
activities of an authorised firm; (ii) should not reassure consumers about the
nonregulated activities of a firm based on its regulated status; and (iii) should not
inform consumers (incorrectly) that all investments in FCA-regulated firms benefit
from FSCS protection.

Recommendation 3: the FCA should provide appropriate training to relevant teams
in the Authorisation and Supervision Divisions on: (i) how to analyse a firm’s financial information to recognise circumstances suggesting fraud or other serious
irregularity; and (ii) when to escalate cases to specialist teams within the FCA.

 Recommendation 4: the senior management of the FCA should ensure that product
and business model risks, which are identified in its policy statements and
reviews159 as being current or emerging, and of sufficient seriousness to require
ongoing monitoring, are communicated to, and appropriately taken into account
by, staff involved in the day-to-day supervision and authorisation of firms.

 Recommendation 5: the FCA should have appropriate policies in place which
clearly state what steps should be taken or considered following repeat breaches
by firms of the financial promotion rules.

 Recommendation 6: the FCA should ensure that its training and culture reflect the
importance of the FCA’s role in combatting fraud by authorised firms.

Recommendation 7: the FCA should take steps to ensure that, to the fullest extent
possible: (i) all information and data relevant to the supervision of a firm is
available in a single electronic system such that any red flags or other key risk
indicators can be easily accessed and cross-referenced; and (ii) that system uses
automated methods (e.g. artificial intelligence/machine learning) to generate alerts
for staff within the Supervision Division when there are red flags or other key risk

Recommendation 8: the FCA should take urgent steps to ensure that all key aspects
of the Delivering Effective Supervision (“DES”) programme that relate to the
supervision of flexible firms are now fully embedded and operating effectively.

 Recommendation 9: the FCA should consider whether it can improve its use of
regulated firms as a source of market intelligence.

In addition Gloster makes four recommendations to HM Treasury

Recommendation 10: HM Treasury should consider addressing the lacuna in the
allocation of ISA-related responsibilities between the FCA and HMRC.

Recommendation 11: HM Treasury should consider whether Article 4 of MiFID
II or section 85 of FSMA should be extended to non-transferable securities.

 Recommendation 12: HM Treasury should consider the optimal scope of the
FCA’s remit.

 Recommendation 13: HM Treasury and other relevant Government bodies should
work with the FCA to ensure that the legislative framework enables the FCA to
intervene promptly and effectively in marketing and sale through technology
platforms, and unregulated intermediaries, of speculative illiquid securities and
similar retail products.

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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1 Response to So who is accountable for the FCA’s failures over LCF?

  1. Brian G says:

    As I have said many times Henry, your previous faith in the support of the FCA is blind. They are arrogant, ignorant and dictatorial when it comes to telling others what to do, and completely refuse to properly acknowledge their own incompetence. It isn’t even close to being enough to say “lessons will be learned”. The two named senior managers who were both asked by MPs to repay their £90,000 bonuses will not be repaying their bonuses. Instead one of them is now in charge of the FCA “Transformation” project. You often talk about scams (and I fully support you highlighting this area). But don’t you see that the failure of the FCA to properly supervise activities of regulated firms in the area of unregulated products is a MAJOR cause of how these schemes gain false credibility with the naive uninformed victims of these scams? Whilst on the subject of failed, unaccountable regulators and scams proliferation, when will HMRC take responsibility and accountability for their abject failure to supervise the creation of thousands of limited companies by people who were duped into setting them up to enable their scammers to create SSAS schemes in the last decade? The FCA are full of well meaning people who lack the knowledge, skills and experience to supervise products properly. The FCA are not fit for purpose. And the disgrace is that whenever they are criticised or taken to task they have no accountability or oversight. They mark their own homework. They are not a good regulator. They have failed, and the system which allows them to judge their own efforts is not going to change the organisational myopia about their own shortcomings.

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