Treasury Select Committee chair Nicky Morgan has called on the FCA‘s board to look into the failure of the mini-bond issuer London Capital & Finance, as the case raises questions around the wider regulation of financial services.
LC&F went into administraion in January, a month after the FCA ordered it to take down promotional material of the bonds, which it deemed “misleading, not fair and unclear”.
In her letter from today adressed to the FCA’s chair Charles Randell, Morgan pointed out that apart from hurting investors personally involved in the matter, the case exposed possible systematic inefficencies, which might let companies use the status of “authorised by the FCA” to claim credibility.
Morgan’s letter says the LC&F case might leave people outside financial services viewing regulation as convoluted because LC&F did not require authorisation to issue mini-bonds but did require it to promote the product.
The regulator said in a previous statement: “Issuing mini-bonds is not a regulated activity so firms issuing mini-bonds do not need to be authorised by the FCA.
“However, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with FCA rules that the financial promotion is fair, clear and not misleading. This means, for example, that risks are appropriately communicated.”
Morgan asked the FCA to investigate whether other firms are using their authorisation in a way that could be misleading to customers.
She cited FCA chief executive Andrew Bailey who previously expressed concern with the prominence LC&F gave to the fact that the firm had been authorised by the regulator.
Morgan also asked the board to consider whether mini bonds should be subject to regulation, if more should be done to ensure consumers know how FCA authorisation can protect them from harm, and whether the FCA acted swiftly enough in its supervisory action against LC&F.