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Jim Armitage: Woeful watchdog FCA should have seen this fiasco coming


London’s financial regulators are, overall, not a bad bunch. In fact, City regulation is probably better now than it has ever been.

Having been too laissez faire to stop the financial crisis, then swung too far towards aggressive clampdowns in its aftermath, we are finally close to getting the balance right.

That’s on the big picture stuff — the overall environment pitting the need to foster innovation against the danger of too much risk.

But on the “micro” side, there remains a culture of box-ticking and look-the-other-way that is deeply worrying, as the London Capital & Finance scandal has so devastatingly stripped bare.

The Financial Conduct Authority failed abjectly to protect the public against investing in a scheme which saw over quarter of a billion pounds of their money go into a dozen extremely risky companies with connected directors and associates. Investors will lose nearly all of their money, far more than in the 1980s Barlow Clowes scandal.

In today’s annual business plan, FCA chief Andrew Bailey points out that there’s a review into the regulator’s failings on this disaster, conveniently allowing him to deflect what is the biggest catastrophe on his watch.

That’s a pity, because the failings, and how he should have addressed them, seem pretty clear.

Primarily, the FCA was warned by financial experts about LCF in 2015 yet did nothing. It was warned again in 2017, yet again did nothing. It was warned repeatedly about LCF’s advertising, but did nothing.

All along, the watchdog’s response, repeated by Bailey today, has been that, while LCF was regulated by the FCA, its products were not. Therefore it wasn’t up to us to act, he says.

Balderdash. Rather than turn the other way, the FCA could and should have realised years ago that these half-in, half-out firms needed dealing with.

It should have told the Treasury its powers needed to be extended over them to protect the public.

All the while the regulator has been doing nothing, other LCF-like bond companies have been setting up, and collapsing, on a regular basis, costing the public millions of pounds each time.

LCF raised so much money from the vulnerable public, so quickly, because its marketing agent, Surge Financial, used social media and Google adwords to devastating effect. My guess is the FCA did not realise the potential of modern marketing techniques to do so much harm.

It should have done. Instead, when complaints about LCF’s ads came in, it passed responsibility to the Advertising Standards Authority, which simply bounced it back to the FCA.

Today was Bailey’s chance to address some of these issues. Perhaps to launch a loud TV, digital and newspaper campaign warning the public to beware of high-interest rate bonds. Instead, we got watery sympathy and not much else.

Another missed opportunity on LCF.