The FCA will commission an investigation in to its own supervision of collapsed mini-bond provider London Capital & Finance.
As a result of the collapse 11,500 people lost £237m.
The investigation will also cover, whether the existing regulation of mini-bonds protects retail investors adequately.
The firm fell into default in January, a month after the FCA issued it with an order to take down promotional material of the bonds, ruling they were “misleading, not fair and unclear”, as they were not eligible for Isa status as claimed.
Acting on the board’s recommendation, made 28 March, the FCA chair Charles Randell wrote to the the economic secretary to the Treasury and MP John Glen, asking for permission to commission the statutory investigation, saying it “would ensure that the review has a broad and comprehensive remit.” Glen agreed.
The case of the collapsed firm drew a lot of attention from both public and press, and prompted a debate about the regulation of financial services.
While providing mini-bonds is not a regulated activity, LC&F had FCA authorisation.
Two weeks ago, the MP and Treasury Select Committee chair Nicky Morgan asked the FCA board to consider the need for a statutory investigation into possible regulatory failure surrounding LC&F.
FCA chief executive Andrew Bailey had previously expressed concern companies use the status of “authorised by the FCA” to claim credibility.
Investor funds from the collapsed firm were traced to four individuals by administrators Smith and Willimson. The administrators found “highly suspicious” transactions among the four men with links to the company.