In December 2021, the publication of the independent review by Dame Gloster Report into the £237m LCF scandal which cited the word ‘failure’ 178 times, put into damning words the extent to which the FCA is unfit for purpose.
When the FCA fails consumers, the Financial Services Act 2012 establishes a statutory requirement for a complaints scheme, overseen by an independent commissioner, under which aggrieved investors whose losses were caused by the FCA’s regulatory failure can seek compensation from the FCA.
In July 2020, before the Gloster Report, the FCA quietly issued a consultation paper during the Covid lockdown, proposing changes to the rules of the compensation regime in two cynical, and in our view, illegal ways. First, it proposed a cap of £10,000 on any claim regardless of quantum. Secondly, it proposed that the FCA would only be liable when it was “solely or primarily” the cause of a loss.
The second change would allow the FCA to escape any claims when any FCA-regulated firm acted improperly, such as LCF.
These FCA’s proposals elicited widespread criticism and outrage and were ultimately postponed, after we protested that these new proposals broke the law, and pressure from lawyers, MPs, LCF investors, the Treasury Select Committee and Dame Elizabeth Gloster. Surprisingly, the FCA decided to press on, publishing on its website in mid-2021, a so-called “Remedies Statement” that asserted the “solely or primarily responsible” test for the first time.
Determined to expose this illegal action by the FCA, we wrote letters to the Chairman of the FCA, all members of the FCA’s Board, the Treasury Select Committee, the Secretary of State and ultimately joined the law firm Shearman’s in an official complaint to the Financial Regulators Complaints Commissioner (FRCC) that was akin to a super-complaint.
The FRCC published her report on 15 February which considered over 400 complainants about the FCA’s regulatory failures on LCF, including our and Shearman’s issue with the Remedies Statement and the FCA’s new test for compensation for investors that resulted from FCA’s regulatory failings.
In a nutshell she found that the FCA’s new proposed scheme was contrary to the law.
The FRCC found that the ‘sole or primary cause’ test was introduced “without the benefit of public consultation.” and made “it inevitable that almost no claimant could ever again be monetarily compensated for the contributing factor of the FCA’s own regulatory failures. It makes the whole scheme 100% worthless in practise.”
She added that the FCA’s Remedies Statement frustrated “the object and purpose of s.87(5) of the FSA 2012” and “the statutory object and purpose underpinning the Complaints Scheme” i.e., was against the law. She recommended the FCA should “withdraw its decisions on LCF complaints … and re-decide them”.
In the face of this strident, hard-hitting report, what did the FCA do?
A month later on 15 March, the FCA published their response to the FRCC Report in which they chose to blatantly ignore the report and its recommendations, ignore common decency and ignore any shred of regulatory integrity.
They say they will ignore the recommendations to amend its Remedies Statement and to change its decisions on compensation for LCF investors as they are not mandatory.
Throughout their response, the FCA repeated its spurious and pitiful reasons for doing so, reasons that had already been comprehensively rejected by the FRCC.
Where does this now leave future victims of scandals that may include regulatory failure by the FCA? What should happen to a financial regulator who has chosen to reject independent findings and recommendations as to its statutory duties and flawed decision-making and who literally see themselves as a law onto themselves? Is there any point of an Independent Commissioner that cost taxpayers £516,000 annually?
It is our view that the FCA farce has to come to an end.
How much more evidence does the TSC and Secretary of State need before they step in and protect British financial consumers by launching an independent, root and branch review of the FCA, akin to the Kingman review.
If this does not happen, they are complicit in allowing the FCA to defy the legislature, undermine the rule of law and behave in a morally bankrupt manner.
The FCA is meant to protect consumers, not abandon them. No regulated firm would be allowed to get away with this without being closed down. Why should the FCA?
It is time we had a regulator that could be trusted and respected and which put consumers first not last. The current regulator is simply not fit for purpose.
Gina Miller is a transparency Campaigner and head of the True and Fair Campaign