LC&F case shows need for ‘more action’ from FCA

The Treasury committee has highlighted the failure of mini-bond provider London Capital and Finance as an example of the need for “further action” as it recommended the FCA be given “more formal powers”.

In a report on the FCA’s perimeter of regulation published today the committee branded the current “ad-hoc” system which relies on an “informal relationship” between the Treasury and the FCA as “inefficient”.

It recommends the FCA should be able to formally recommend to the Treasury changes to the scope of its regulation to enhance its ability to meet its objectives, particularly to prevent consumer harm.

And it says the FCA should set out any costs, both to firms and consumers, from such a move at the same time.

The committee outlined the concerns around the actions of RBS Global Restructuring Group, mortgage prisoners and the failure of London Capital and Finance as examples it has seen of the need for further action.

Such a process would provide greater transparency and focus, according to the MPs.

Mini bond provider linked to collapsed LC&F late paying interest

The FCA has welcomed the recommendations to tackle the “complexity” of the current system.

A spokesperson for the regulator says: “This report rightly highlights a number of cases where members of the public have suffered significant harm and have not had the protections they think they are entitled, because of the complexity of the legislative framework for regulated activities.

“This complexity is an issue the FCA has raised over a number of years, so we welcome this report which is an extremely useful contribution to that debate and we look forward to working with parliament, Treasury and others to examine the recommendations.”

Information requests from FCA ‘greater than necessary’

The committee acknowledges that the perimeter of regulation appears to be “confusing” for consumers of financial services and it suggests some firms may “deliberately game” the perimeter to undertake regulatory arbitrage.

It says care needs to be taken where regulated financial institutions are undertaking an activity that is unregulated.

“Often the realisation that an activity is unregulated comes only after problems emerge, and the regulator’s lack of power becomes apparent to those affected,” the report states.

It adds: “The FCA has made recent efforts to monitor the perimeter, most recently via the analysis published in its perimeter report. Its warnings on the potential harm to consumers at, and beyond, the perimeter must be heeded.”

In future the FCA must not be or feel constrained from providing warnings on financial products that may cause consumer detriment.

“The FCA should be given the remit to highlight the risks faced by financial services consumers including where an activity is beyond the perimeter of regulation. This should be written into the relevant primary legislation, and include any necessary powers needed to fulfil that remit.

“This would allow the FCA to identify and provide clear warnings about products and activities that might pose risks to consumers, without fear of breaching its remit. In providing such a remit, the government should ensure that the FCA has the power to act swiftly and without undue restraint as it sees risks arise,” the committee says.

The Treasury is considering the wider scope of financial regulation, including potential action to improve coordination between the regulatory authorities.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Or…

    If a firm is regulated it is constrained to act according to high level principles that ensure it is acting in the interests of its customers. All its customers. Nowhere in the principles under which we operate does it say ‘treat your customers fairly UNLESS you’re peddling dodgy unregulated crap to them’.

    Whilst some clarity and simplification will always be welcome (particularly when it enhances accountability) it does require an appetite to actually examine and enforce.

    If there was an audit trail of the FCA challenging LC&F, and LC&F fighting them off with lawyers then perhaps a change in regulatory perimeter would be necessary – but actually what was required was a willingness by the regulator to regulate a regulated entity about which there were known and shared concerns.

    • Indeed. Added to this, according to the FSCS it would appear that a firm employed by LC&F, a regulated firm, was giving advice on its behalf which would be covered by the FCA had it bothered to look or take any notice of warnings. It has the power it just seems unwilling to use them.

  2. I do not see where the conflict arises, if something is not regulated or approved then the FCA should be free to warn consumers that they are not protected.If the boundaries of acting within the regulatory principles are being stretched, then enforce them.

    The problem we have as advisers is that these perimeter activities end up being dumped into our compensation levies,so from our point of view we do not mind if the FCA are aggressive in preventing consumer harm, whether it be by preventing products coming to the market, or penalising those who sell them knowing that they are unsuitable for retail clients.

  3. I suspect most honest advisers would endorse what John Stirling and Geoff Sharpe have said above.
    The FCA have all the necessary powers, they just need to apply them against the bad and not just go for the low hanging fruit of the good and honest advisers not ticking a box.

  4. I fully endorse all the views here. This situation mirrors the general position with laws in the country. The State is continually introducing new and very specific laws as a knee-jerk reaction to specific situations (which have populist appeal but are then limited in value by their tight focus) when we have pretty much all the laws we need, we just don’t apply them.
    This is no less true of the FCA.

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