The Financial Conduct Authority (FCA) has refused to accept two of the main issues highlighted in the Complaints Commissioner’s report into its handling of the London Capital & Finance (LCF) scandal.
The commissioner identified the two failures as “significant problems” with the FCA Register, and the inability to secure compensation under the regulator’s complaints scheme.
While the FCA admitted that errors were made in the regulation of LCF, it did not accept the commissioner’s recommendations on the register or the complaints scheme.
The watchdog said that its register was not misleading, although it “could have been clearer”.
“Although the register is an important source of information, it is not designed to be the sole source of information for investors to use before making investment decisions,” the FCA said in its response to the report.
“We would expect investors to consider a wide range of information from different sources to help them understand any potential investment and the risks involved and to identify if they are protected if things go wrong.”
It added that improvements to the register have been made in the last couple of years, including the implementation of a banner in March 2021 “to highlight to consumers that firms we regulate may carry out unregulated and regulated activities and that they should contact the Financial Ombudsman Service and the Financial Services Compensation Scheme (FSFS) directly if they want details about the protection [the two bodies] may offer them”.
Redress
On the complaints scheme front, the FCA refused to accept the commissioner’s criticism that it is virtually impossible to secure ex-gratia payments and/or compensation under it, and that the ‘sole or primary cause test’ should be removed as a condition for redress.
The watchdog said: “We want to make clear that we agree we should assess complaints in accordance with the complaints scheme. Where we are not the ‘sole or primary cause’ of the complainant’s loss, this does not act as a block to the award of compensation where we consider compensation would be appropriate.
“In the case of LCF bondholders, we have concluded that it is appropriate to make ex-gratia payments in cases where we gave investors incorrect information in direct communications which may have led them to believe that their investment would be safer than it was, incorrect information cases, even where the FCA was not the sole or primary cause of that loss.”
The regulator also refused to accept the commissioner’s call to reassess all LCF cases and re-determine whether additional compensation may be due.
It did add, however, that so far LCF bondholders have received over £173m ($234m, €205m) in compensation:
£58.3m from the FSCS;
£5.4m from LCF administrator payments; and
£109.4m from the government LCF compensation scheme – as of 14 March 2022.
The government expected to pay out around £120m in total under its redress initiative.
“As such, it is appropriate to give weight to the fact that, while there were substantial total losses, many investors have also received significant compensation for losses in respect of a high-risk unregulated investment,” the FCA said.
It added that it expects LCF victims to recoup around two-thirds of their original investments from the three channels above.
“We hope this response provides more clarity about the approach we have taken in this case and explains why we have come to the decisions we have under the complaints scheme.”
This article first appeared on International Adviser
