THE GOVERNOR: I’M SO SORRY
Bailey apologises to 11,600 LCF savers left £237m out of pocket
THE governor of the Bank of England has apologised over the London Capital & Finance (LCF) savings scandal.
Andrew Bailey, who was chief executive of the Financial Conduct Authority when LCF collapsed into administration last year, said sorry to the 11,600 victims who were left £237m out of pocket.
It came as Dame Elizabeth Gloster, a retired Court of Appeal judge, published her long-awaited report into the watchdog’s handling of the LCF disaster. She concluded that the FCA did not discharge its duties properly, and that LCF investors ‘were entitled to expect, and receive, more protection’.
In a historic acceptance of fault from a Bank governor, Bailey said: ‘As CEO of the FCA between 2016 and 2020, I apologise to LCF bondholders.
‘When I was asked to lead the FCA in July 2016 it was clear that a substantial reform programme to the supervision of many of its 60,000 firms was essential. We took immediate steps to change the approach. The required changes in culture, mind-set and systems was a major programme of work across the organisation, which took some time to put into effect. I am sorry those changes did not come in time for LCF bondholders.’
LCF tumbled into administration in January 2019, after selling so- called minibonds to thousands of savers.
They were promised high returns for low risk, as LCF said it would lend their money to hundreds of businesses which needed the money to grow.
But investors were left high and dry when the firm collapsed, and it turned out that their money had been funnelled to a very small number of borrowers.
Thirteen people linked to LCF are being sued for £178m in connection with an alleged fraud, after it was claimed savers’ cash was spent on horses, a helicopter and a lifetime membership to a Mayfair private members’ club.
Gloster’s review was ordered by the FCA to probe its handling of the savings scandal. LCF had been authorised by the FCA – a factor which convinced many savers to entrust the firm with their money. But unbeknown to savers, the primary activity which LCF carried out – creating minibonds to take their money and supposedly lend it out – was not regulated by the watchdog. Gloster found FCA staff were so blinkered in their approach, only looking at the regulated activities which LCF carried out and ignoring everything else, that they did not consider how the firm might be using its authorised status as a badge of trust to promote risky and potentially fraudulent products to savers.
Tory MP Mel Stride, chairman of the Treasury Committee, said: ‘This report exposes a litany of failings at the FCA.’
Gloster also pointed the finger at the FCA’s senior management – which would have included Bailey, at the time – though she found no one personally culpable.
Charles Randell, chairman of the FCA, said: ‘We accept all the recommendations that have been made to the FCA and we are profoundly sorry for the mistakes we have made. The collapse of LCF has had a devastating effect on many investors and we will do everything we can to conclude our investigations as quickly as possible and support the recovery of further funds for investors.’