The City watchdog has come under renewed pressure over its handling of the London Capital & Finance (LCF) collapse that left thousands of investors nursing losses of £237m.

A report by the Treasury select committee of MPs questioned whether the Financial Conduct Authority (FCA) – responsible for regulating financial firms – had met the standards of accountability it imposes on the companies it oversees.

It found the FCA put an “over-reliance” on its collective responsibility for the failure of LCF in 2019, rather than on accountability of senior officials at the regulator which was run by Bank of England governor Andrew Bailey at the time.

The committee made a series of recommendations in the wake of an inquiry by Dame Elizabeth Gloster, a former Court of Appeal judge, which concluded the watchdog had been “wholly deficient” in discharging its responsibilities and must improve internal authorisation and supervision processes.

Nearly 12,000 people invested a total of £237m into LCF products ahead of the minibond specialist’s demise.

While the mini-bonds were unregulated, LCF was licensed by the FCA and the government later announced a £120m compensation payout to the bondholders.

Mr Bailey has previously apologised saying that “substantial reform” of the FCA, which he put in place during his tenure from 2016, was not ready in time to save LCF investors.

The committee’s report did not include direct criticism of Mr Bailey but said there were “doubts as to whether the FCA board has met the standards which it seeks to impose on others” with an “over-reliance on collective responsibility”.

Its chair, Mel Stride, said: “The Treasury Committee has made some further recommendations for the regulator and the government to help prevent another LCF.

“This includes setting deadlines and milestones for the FCA’s transformation programme, expediting HM Treasury’s consultation into the regulation of mini-bonds, and including measures to address fraud via online advertising in
the Online Safety Bill.”

The MPs said it was “disappointing” that measures against fraud through online adverts were not part of the draft bill published last month.

An FCA spokeswoman responded: “As we have said we are profoundly sorry for the mistakes we have made over
LCF and are committed to implementing the recommendations of The Gloster Report which are progressing at pace.

“The FCA has embarked on a wide ranging transformation programme to build a data-led regulator able to make fast and effective decisions and we are providing the committee with updates on our progress.

“We agree with the recommendation that fraud via online advertising should be included in the Online Safety Bill, as online platforms are now the single biggest channel of financial scams and fraud.”

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