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Nicky Morgan tells FCA to investigate regulated status after collapse of mini-bond firm

Rubber-Stamp-Approve-Attr-Sarah-Parrot-700x450.jpgTreasury 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.”

Four arrested as Serious Fraud Office probes collapsed mini-bond provider

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.


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There are 7 comments at the moment, we would love to hear your opinion too.

  1. “caveat emptor” Why is it always somebody elses fault and no doubt they will want compensating.

  2. The whole ‘regulated’, ‘unregulated’, ‘advised’ and ‘non-advised’ mess continues unabated and it feels the cost is carried by regulated firms and their clients.

    Is there any wonder so many fall foul of this given that there’s great big gaps in regulation that can be taken advantage of. Investors need to know what to ask to protect themselves.

    Most savers understand about the FSCS and cash deposits (even knowing the limits) and yet investors keep getting stung by the weird, wonderful and potentially fraudulent.

    One solution – standardise disclosure for all investments using closed/tick box statements. The less wriggle room, the more everyone will understand.

    Furthermore, wherever possible, ban commission / kick backs / inducements to 3rd parties.

  3. It will never be possible to stop the greedy and foolish investing in things which are pretty obviously highly risky. As an example one of the news comments from someone who lost money on the LC&F Bonds was a retired barrister. Surely it would be expected that someone with a modicum of sense would recognise that where a bond pays 8% and bank accounts pay 1% capital is almost certainly to be at risk. A fool and their money are soon parted;.

  4. I’d like to hope my comments about this exact thing (either here or FT Adviser) were read and helped be acted upon.

    I keep banging on about the issue of permissions. The FCA themselves have been gormlessly banging on about “if it is regulated by us, you’re safe” without ever drawing distinctions between all the millions of regulated activities and the securities to which they might apply. On top of that, a “regulated” business also conducting unregulated transactions (in many cases, quite lawfully, but unregulatedly) doesn’t make it “regulated”. This makes by blood boil, especially when the FCA are complicit in promoting a status that appears to provide a security that doens’t exist.

    But don’t ask the FCA, because they haven’t spotted in 17 years that the whole system they helped bring about and to operate is fundamentally NBG to the one group of people its supposed to protect.

    The ridiculous thing is that we know the FCA is absolutely nowhere on this because we know of at least half a dozen similar promotions to L&CF and they are still in operation collecting client monies as we speak. When one particular one of them blows up (quite possibly within weeks now)the story will be astonishing. It has even got a TV show connection to it with a bit of horseracing thrown in.

  5. As of today, this is the very text of bullet point three of five on the FCA’s scam smart webpage

    If you’re buying a financial product such as a loan, insurance, investment or pension, only deal with a FCA-authorised firm – check our Register to see if the firm is registered. Always access the Register from our website, rather than through links in emails or on a firm’s website (it might be part of the scam).

  6. Nicky Morgan isn’t empowered to “tell” the FCA to do anything. Her predecessor tried it and got nowhere. For its part, the FCA is not empowered to decide what it shall or shall not regulate. For the FCA to take on responsibility for trying to regulate something that it hasn’t before, a change to the law is required, presumably by way of the FSMA.

  7. I was worried when Andrew Tyrie left the Treasury Select Committee, but I have to say that Nicky Morgan appears to have picked up the reins and is doing a great job asking very good questions.

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