The Financial Conduct Authority’s powers should be extended to cover the “hinterlands where it is not clear to consumers where they leave protections and where they remain within them”.
Speaking to the Treasury Select Committee (TSC), FCA chief executive Andrew Bailey said confusion about which financial products offer consumer protection “attracts bad people who wish to exploit those grey areas”.
Bailey has answered questions from the TSC about the regulator’s intervention in the run-up to the collapse of mini-bond provider London Capital & Finance, which earlier this year went bust leaving 11,000 savers £236 million out of pocket. The firm's collapse is the subject of a criminal investigation by the Serious Fraud Office, which has made a number of arrests.
Financial advisers first raised concerns about the company in 2015 and the regulator has been questioned over whether it failed to act quickly enough to intervene.
Bailey said the regulator had intervened on five occasions between 2015 and autumn 2018. The FCA had been acting outside of its regulatory perimeter and had not been aggressive enough, he said. Bailey said a major question was why the FCA’s interventions did not have the effect that they should have done: “I don’t think the risk warnings adopted [on the firm’s marketing promotions] did the job.”
He added: “This should never have happened. People should not be in this position and it is incumbent on us to do everything we can to get this money back.”
FCA Has Dedicated Fraud Team
Bailey said the regulator had a dedicated team scouring the internet for firms which were misleading or de-frauding consumers, and there were questions over what could be expected in the way of intervention from big internet companies such as Google and Facebook.
He said: “In this world you can commit significant fraud without being a significant firm. These companies can do hundreds of millions of pounds worth of damage.
“The issue of mini bonds is enormous, and this is not an isolated issue; the people behind the worst of these schemes will simply pop up somewhere else.”
He said that a low interest rates and the introduction of pension freedoms had helped to create an environment where individuals can put their money into very high-risk products without realising.
Events such as the collapse of LC&F have been part of the reason that the FCA has decided to crackdown on Innovative Finance Isas and peer-to-peer lending. Earlier this year, the regulator warned that IFIsas were risky products. This month it revealed changes which limit individual’s investments into such assets to a maximum of 10% of their portfolio. Bailey admitted there had been pushback on the decision from peer-to-peer providers, which have accused the regulator of stifling the industry.
“We had to introduce a limit because there are just too many examples coming our way that are absolutely tragic, where people have put their life savings into these investments and we can’t leave people in that situation,” said Bailey. “We have had strong pushback from the industry and yes there are a low level of complaints but only until something goes wrong. We feel we have to do this or we end up having to have conversations like this morning’s [about LC&F].”
