JEFF PRESTRIDGE: City’s regulator Financial Conduct Authority has let down ALL investors – now heads must roll
Surely, it is time for the Government to launch a review into the workings of the City’s regulator, the Financial Conduct Authority. An organisation meant to protect customers but, based on the conclusions of excoriating independent reviews just published into its role in two scandals, is more interested in protecting its own.
It is all so shameful. Indeed, so damning are the findings that regulatory heads should now roll and bonuses earned by key executives paid back – yes, unbelievably, executive greed is even part and parcel of our bloated regulator’s culture.
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The two reports, into the regulation of mini-bond issuer London Capital & Finance (LCF) and collective investment scheme Connaught, are damning. Both businesses collapsed, leaving investors with losses totalling £236million and £118million respectively.
Pointing the finger: An organisation meant to protect customers is more interested in protecting its own
According to the reports’ authors – former judge Dame Elizabeth Gloster and part-time judge Raj Parker – the regulator was found wanting on both occasions. Parker’s Connaught report concludes: ‘The regulator’s regulation of the relevant entities and individuals connected to the fund [Connaught Income] was not appropriate or effective.’
But it’s Gloster who fires the bullets. She highlights structural failings within the FCA that make the hairs stand up on the back of your neck.
Just for starters: a lack of training for staff whose job is to supervise the firms under the regulator’s watch. Lax processes in place for acting upon complaints brought to its attention by the public or those working in financial services. And staff employed to monitor companies’ marketing material without formal training in how to spot anything suspicious.
Most damning, it quotes an official working for the regulator’s supervision division who admits: ‘I don’t believe to the best of my knowledge that there is much training around how to identify financial crime.’ You couldn’t make it up.
So, in a nutshell, the FCA is a regulator not tooled up to do the job we trust it to do – namely, to protect people from the fraudsters that disgracefully plague the financial services industry. And one so arrogant that it then unsuccessfully attempted to persuade Gloster into redacting the names of officials who had overseen the regulator’s supervisory duties while LCF made hay at investors’ expense.
An approach used not only by Megan Butler and Jonathan Davidson who at the time of LCF’s plundering were directors of supervision – and duly received performance-related bonuses for their ‘work’. But also by Andrew Bailey, now head of the Bank of England yet FCA boss during the LCF debacle.
He said Gloster’s investigation should focus on organisational rather than individual failure. For the record, Butler was risibly appointed executive director for transformation in November while Davidson has become a senior FCA adviser.
Although the regulator was quick to respond to the reports – accepting all recommendations made – and promised to do everything possible to ‘bolster’ consumer trust in its work, dark clouds hang over it.
There are those in the City who have long been shouting from the rooftops about abject failure at the FCA – the likes of Alan and Gina Miller of The True and Fair Campaign.
In February, they produced an ‘asleep at the wheel’ report which described Bailey’s FCA legacy as ‘a toxic cocktail of negligence, incompetence and indifference to ordinary depositors, investors and pensioners’.
The two reports on Thursday vindicate their belief the FCA is not fit for purpose and that the Treasury should launch a root and branch review.
It’s a view I share fully. For the past 18 months, the regulator has been probing the sudden closure and wind-up of mega investment fund Woodford Equity Income. It has yet to tell us what it has discovered. Maybe its dilatoriness is a result of the fact it doesn’t like what it has found – that it consistently ignored warnings that manager Neil Woodford was taking big risks with other people’s money by investing up to 40 per cent of the fund in illiquid assets.
Given that the losses incurred by Equity Income investors dwarf those of LCF and Connaught combined, it is vital we have an independent review of the Woodford scandal that includes the regulator’s role in this sorry affair. Gloster is just the person to carry it out.