The inquiry will cover two areas:
- whether the existing regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm
- the FCA’s supervision of LC&F
The first area of investigation will essentially cover whether the FCA can pass the buck.
The regulatory system is not the FCA’s creation but the creation of the Government; it is the Government that writes securities legislation and the Government that periodically sets up, abolishes, merges and reshuffles the regulators.
The FCA has therefore decided that the most important question (the one they have listed first of the two) is whether they can blame the regulatory system rather than the regulator, i.e. themselves. As a famous social scientist once said, don’t hate the playa, hate the game. Not our fault guv, we don’t make the rules.
The FCA has wide powers of rule-making and interpretation but could not fundamentally alter the Financial Services and Markets Act, give itself new powers or make unregulated minibonds regulated.
I’ll give the FCA’s as-yet-unamed independent reviewer a clue: the answer to the first question is no. But that has absolutely nothing to do with whether the FCA should have:
- paid more attention to the repeated warnings from both industry professionals and members of the public about LCF’s misselling from 2015 onwards
- while processing LCF’s application for FCA authorisation, conducted a cursory Google search for its name; which would have revealed, among other evidence of potential harm, the now long-running Moneysavingexpert forum thread in which numerous potential investors were asking whether LCF was safe, providing ample evidence of potential misselling
- taken action on LCF’s misleading financial promotions (and those of third parties to whom LCF paid commission) earlier than December 2018
- demanded that LCF produced evidence that all its investors qualified as high net worth or sophisticated investors; and that they had not just ticked a box to say so, but provided evidence that they qualified as such, as required by FCA regulation COBS 4.12.9 onwards
A timescale for the inquiry has not been given, but the phrase “broad and comprehensive remit” provides a clue. The FCA is likely to have plenty of time to fish out its “lessons will be learned” stamp.
Who is to lead the inquiry is yet to be decided. Whoever it is, if they truly want to demonstrate that they are genuinely independent, they could start by insisting that the first question should be a completely separate inquiry, as it is a completely different area of investigation.