Bank of England governor Andrew Bailey did not provide “an adequate reason or excuse” for failures to protect savers in the £236m London Capital & Finance collapse, the head of the independent inquiry into the scandal told MPs on Monday.
Elizabeth Gloster, a former Court of Appeal judge, said Mr Bailey, who was head of the Financial Conduct Authority from 2016 to 2020 had also demonstrated a “lack of judgment” in trying to keep his name out of her report.
Dame Elizabeth told the Treasury select committee that senior managers at the FCA had been responsible for serial failures of investor protection in the run-up to the collapse of the mini-bond issuer in January 2019, in which 11,000 individual investors lost money.
When her report, which was highly critical of the FCA, was first published, in late December, Mr Bailey issued an apology, in which he said: “When I was asked to lead the FCA in July 2016 it was clear that a substantial reform programme to the supervision of many of its 60,000 firms was essential . . . I am sorry those changes did not come in time for LCF bondholders.”
But, asked by committee chair Mel Stride if this apology went far enough, Dame Elizabeth replied: “Although Mr Bailey is right in his apology in saying that he inherited a difficult situation . . . my report is clear that the issues he inherited didn’t excuse or mitigate the FCA’s overall failure to regulate LCF during the period of guardianship,” she said. “It’s not an adequate reason or excuse to say: ‘Oh, if only LCF had happened a bit later, all the changes we would have put in place would have stopped it from happening.’”
Dame Elizabeth was also highly critical of attempts by Mr Bailey and two other FCA senior managers to have their names omitted from her report — despite the FCA’s own remit to hold executives in financial firms to account.
She told MPs she might have described her reaction to the request as “quite irritated” or “quite surprised”, adding: “It seemed to me that it was inappropriate in quite a serious way to try and suggest to me that as part of the legal . . . process that their names shouldn’t be mentioned,” she told the committee. “It is a lack of judgment to put forward that representation.”
Her comments went further than those in her report, where she wrote of “disappointment with this suggestion, which is misconceived for a number of reasons, including the fact that the FCA is a regulator which certainly expects key individuals at regulated firms to take responsibility when a failure has occurred.”
Mr Bailey declined to comment on Monday following Dame Elizabeth’s evidence, but will appear before the committee next week to answer MPs questions. “That’s the appropriate place to address the points made . . . that’s where he will do so,” said one person familiar with his plans.
LCF, which went into administration in January 2019, had marketed high-risk, unregulated mini-bond investments direct to private investors.
Dame Elizabeth’s report found that the FCA had granted LCF “inappropriate” permissions and did not adequately supervise the firm. In addition, the regulator was deemed “wholly deficient” in handling warnings about LCF from third parties.
Following the report, the Treasury said it would set up a compensation scheme to consider one-off payouts to former LCF investors — most of whom are not covered by the main Financial Services Compensation Scheme as they bought unregulated products without advice.
Dame Elizabeth told the committee that her report did not preclude findings of personal culpability of those involved by either the Treasury or new FCA boss Nikhil Rathi.