By Huw Jones
LONDON, June 24 (Reuters) - The collapse of London Capital &
Finance showed how Britain's Financial Conduct Authority
appeared unable to meet standards of accountability it imposes
on firms it regulates, a parliamentary report said on Thursday.
The report from the Treasury Select Committee said the FCA
put an "over-reliance" on its collective responsibility for the
investment firm's failure in early 2019, rather than on
accountability of senior officials at the regulator.
The FCA requires senior managers at regulated firms to be
directly accountable for their actions to make it easier to
punish individuals, a landmark reform that came out of the
financial crisis.
"The FCA Board should reflect on whether it has, in this
case, met the standards which it seeks to impose upon others. We
believe that there are doubts as to whether it has," the report
said.
LCF left 11,625 investors facing losses of up to 237 million
pounds ($331.52 million) on the mini-bonds they bought. It was
licensed by the FCA but the mini-bonds were unregulated, making
investors ineligible under the UK's financial compensation
scheme.
In a rare move, the government will pay investors about 120
million pounds in compensation for what the report called "one
of the largest conduct regulatory failures of the last three
decades".
An independent report in December by Elizabeth Gloster, a
former judge, blamed the FCA's executive committee, then headed
by Andrew Bailey, now the governor of the Bank of England.
She also singled out two other board members, Megan Butler
and Jonathan Davidson, and all three asked her not to name them
in her report.
Davidson has since left, but Butler remains in a new
executive role in charge of a big revamp to improve internal
culture.
Lawmakers said the FCA was "wrong" not to have recruited
more widely for the job, leaving people to feel that "a buck
that does not stop with an individual stops nowhere".
The FCA said on Thursday it was profoundly sorry for the
mistakes it has made over LCF.
The report said the FCA should set milestones and deadlines
for completing its lengthy transformation into what the watchdog
described on Thursday as a data-led regulator able to make fast
and effective decisions.
"The FCA should provide us with an update on its resolution
of LCF complaints by 30 September 2021," the report said.
The report called on the government to include measures to
tackle fraud via online advertising in its Online Safety Bill to
prevent further harm to customers. The finance ministry said it
has been a very difficult time for LCF bondholders, and it will
consider the lawmakers' conclusions.
The FCA should be given the power to recommend changes to
the 'perimeter' of regulation formally to the finance ministry
to crack down on unregulated activity harming consumers, the
report said.
It concluded that Bailey, who had challenged some of
Gloster's comments, had not misled the parliamentary committee's
hearing into LCF. The Bank of England had no comment on the TSC
report.
($1 = 0.7149 pounds)
(Reporting by Huw Jones
Editing by Paul Simao)