Watchdog faces probe over savings firm collapse
A FORMER High Court judge will probe the City watchdog over its failure to stop a savings scandal.
Dame Elizabeth Gloster has been asked to examine why the Financial Conduct Authority did not protect customers from collapsed firm London Capital & Finance.
LC&F went bust earlier this year owing £237m to 11,500 customers, and is facing a fraud probe. Money was funnelled to ventures such as holiday developments in Cape Verde – benefiting a group led by Simon HumeKendall ( pictured top right with
wife, Helen), the founder of LC&F’s predecessor business, according to administrators.
Critics claim the disaster could have been prevented by the FCA, but it did nothing despite repeated warnings.
The Treasury has asked former High Court and appeals judge Gloster to look into the allegations, and the rules could be tightened up to stop it happening again. She has been given a year to look at what happened.
FCA chairman Charles Randell said: ‘ This investigation will establish what happened with LC& F and whether further changes are required.
‘ The FCA will ensure that [Gloster] has all the access and support she needs to conclude her work as quickly as possible.’ LC&F customers were told their cash would be invested in a wide range of companies through socalled mini-bonds, offering eyecatching returns as high as 8pc.
But after the company’s collapse, it emerged the funds were in fact given to just 12 businesses in a series of transactions which administrators described as ‘highly suspicious’.
Mini-bonds – which are not regulated by the FCA – have grown in popularity since the financial crisis and are often used to raise cash by smaller firms which have struggled to get funding from banks. They have been issued entirely legitimately by firms from craft brewer Brewdog and Hotel Chocolat to Lancashire County Cricket Club, and often come with perks such as free beer or chocolate.
But if a business goes bust, the savers who bought the bonds can lose everything. Unlike a conventional bank account, their money is not protected by the Financial Services Compensation Scheme.
Last month, the Mail revealed the FCA knew years ago that there were problems with minibonds, but took no action to bring them under control.
Regulators warned in 2015 that the bonds are highly risky products where investors’ money is not protected.
At the time the FCA said: ‘Firms are failing to make clear that mini-bonds are investments that place investors’ capital at risk, and are not deposit-based or capital-protected products.’
LC&F victims welcomed the probe but said it should have started sooner, and were concerned it might last more than a year. A spokesman for the LC&F Bondholders Facebook group said: ‘There is no mention about victim compensation resulting from serious regulatory failure, and whether the investigation will determine whether the thresholds are met which would justify an ad hoc compensation scheme being set up.’
Tory MP Nicky Morgan, chairman of the Treasury Select Committee, said: ‘This cannot be kicked into the long grass. The FCA, Treasury and Dame Elizabeth must think innovatively about how the investigation can report quickly.’