TTF Blog: 21 December 2020

by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting

Reports on regulatory failure in the Connaught and London Capital & Finance scandals – which collectively lost consumers hundreds of £millions in hard-earned savings – were published last week with damning effect on the UK’s leading City watchdog the Financial Conduct Authority.

Transparency Task Force is brainstorming for a White Paper on how the FCA could be fixed, as former watchdog chiefs face press ridicule for both ignoring tip-offs on scandals and trying to use ‘Maxwellisation’ – legal attempts to challenge what is said about them – to mute personal criticism after the fact.

Much of that censure has fallen on Bank of England governor Andrew Bailey, who is likely to be defending his career history to MPs in the new year. As the Guardian‘s Nils Pratley commented, Bailey’s job is probably secure but there are no guarantees. William May, a campaigner against banking fraud, commented at a Symposium we ran last week that ‘I’m extremely pessimistic about what we’re looking at … in recent weeks, Andrew Bailey has come out amazingly saying that he wants even looser regulation. That I regard as outrageous.’ Journalists, meanwhile, have noted Bailey insufficiently resourced consumer protection in his former role leading the FCA. Investigative teams were apparently understaffed, despite the FCA being funded to the tune of approximately half a £billion each year – it had income last year of £632 million from its industry-funded levy, Patrick Hosking reported today. Where’s all that going, if not on enforcement?

The campaigns of TTF member Mark Taber  would appear to suggest that the FCA is still not keeping up with one volunteer accountant identifying scam promotions online. According to Taber they’re still failing to clamp down on con-websites he flags, as he told the Times, despite all the FCA’s resources. With the best will in the world, there is much that needs to be improved. A lot of the problems are to do with the ‘regulatory perimeter’, which means regulated entitites can promote unregulated products.

Policing the ‘regulatory perimeter’

Helen is one of the 11,000 of so London Capital and Finance investors who lost savings to the multi-£million scheme. She presented to a Transparency Task Force symposium last week (watch) on how she was sold what were termed ‘fixed rate bonds and ISAs’ but were actually mini-bonds.

She suggested that regulation needs to be ‘appropriate to the business model’ within financial services and that “quasi-bank activity” ‘absolutely needs to be addressed’.

Who decides the public interest?

Baron Prem Sikka, a new member of the House of Lords who has long campaigned against financial abuses, observed at last week’s Symposium (video) that Andrew Bailey and others at the FCA tend to cite ‘the public interest’as what they exist for. He asks in response ’where exactly are the public, and how do you know what the public interest is, so that you can serve it?’”

He said: “There is very poor public accountability” and ‘if regulators have dual purpose, they will fail.’

Regulatory capture in financial regulators is often fuelled by a revolving door of staff between the City and its watchdogs.

How many watchdogs, across industries, does the UK have?

Prem Sikka said he asked of various Ministers how many regulators the UK has. He thinks there are more than 700 of them and “We have at least 41 dealing with the finance industry alone. … we have 25 dealing with moneylaundering, five with auditing, five dealing with insolvency …”

But “above all, they are all passive. … many people talk about the RBS HBOS frauds, that nobody could have liquidated somebody’s business without the involvement of insolvency practitioners. Insolvency regulators have done nothing – they are just waiting for complaints and evidence to land in their lap. …. There is very little public accountability.

Years of victim-dodging by watchdog chiefs

Both Helen McGregor representing LCF investors and Mark Bishop, who leads the Connaught Action Group for victims of that scandal, flagged up the FCA’s perceived lack of learning from the multi-£million Connaught losses, which long preceded LCF’s mega-loss to consumers. 

 In 2014, Mark Bishop explains how he “put together a presentation” of about 20 minutes with “some thoughts on how Connaught could have been prevented from reoccurring, and how other scams could be prevented.” This was “mostly stuff that the FCA could do without needing any external changes of legislation.”

He explains: “I wrote to [then-chief] Martin Wheatley, he refused to meet me to listen to it. I wrote to every subsequent chief executive including the interims, they have all refused to meet me and listen to the presentation. Twice I’ve been able to meet with direct reports to the then chief executives, and both of those people have said that no change was needed.”

Pressure on Nikhil Rathi to engage with Connaught victims

Somewhat disappointingly, Nikhil Rathi has also refused to meet with Mark Bishop so far as a representative of the Connaught action group, or to look at any of the slides he has produced offering the lessons that could be learned.

However, Mark is hopeful that Rathi is ‘getting his feet under the table’ and that, following the damning review of the Connaught scandal, the situation could change in the new year. What he would like to see is: “a period of engagement with constructive critics and the victims of financial services misconduct – and whistleblowers, because they are the people who have really put everything on the line in order to do the right thing.”

How to address the problem

Mark Bishop is courting for views on the white paper TTF is preparing on this subject: “I think it should speak for and on behalf of those of us in TTF who believe there is scope to improve the FCA and have constructive ideas on how that should be done” he explained at a recent Symposium. “Just drop me one sentence on your honest view of the FCA, and … one idea, no more than a paragraph for how you would improve it, which won’t require large amounts of legislation”. He is keen to draw those suggestions into a brainstorm of potential reform and incorporate those views into the White Paper.