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Andrew Bailey to be quizzed on regulator's role in LC&F scandal

<span>Photograph: Bloomberg/Getty Images</span>
Photograph: Bloomberg/Getty Images

The incoming governor of the Bank of England, Andrew Bailey, is to be questioned as part of an official inquiry into the City regulator’s role in the London Capital & Finance scandal.

Dame Elizabeth Gloster, who is leading a government-backed investigation into how the Financial Conduct Authority regulated LC&F before its collapse, confirmed that the FCA’s outgoing chief executive would be interviewed as part of the review.

“I am going to be interviewing him, the FCA has agreed to make him available,” she said, at a meeting of nearly 200 affected bondholders in London on Thursday.

Any suggestions that the FCA failed to protect investors will be an embarrassment for the incoming central bank governor. The FCA has also been criticised for the way it supervised Neil Woodford’s flagship investment fund before its collapse. The shadow chancellor, John McDonnell, has called on the government to delay installing Bailey as governor until an independent inquiry can be conducted. Bailey, 60, takes over from Mark Carney at Threadneedle Street in March.

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Investors who collectively lost £236m hit out at the FCA throughout Thursday’s meeting, saying they received inaccurate information about whether their life savings were protected. While LC&F and its marketing materials were regulated by the FCA, the mini-bond products it sold were not.

One ex-auditor and bondholder said he did his due diligence, researching the company online and via the FCA website. “I could see nothing there that would indicate that they were not fully authorised and regulated by the FCA. I saw nothing to say that they were purely authorised for marketing only.”

However, he claimed the FCA even failed to keep tabs on LC&F’s marketing materials. “There were adverts going out there using the FCA’s name and logo and no one picked it up for years. They truly were sleeping on the job.”

LC&F mini-bonds promised stellar returns to investors of up to 8% a year, but put only a small amount of cash into safe interest-bearing investments. The rest was funnelled into speculative property developments, oil exploration in the Faroe Islands and even a helicopter bought for a company controlled by LC&F. The company collapsed in January 2019.

One man blamed the FCA for his financial loss: “We lost our savings and probably our funeral money.” Another claimed he was was assured by the Financial Services Compensation Scheme that LC&F was authorised by the City watchdog and therefore he was covered for compensation of up to £50,000. That would not end up being the case.

“We are led to believe that the authorities that you speak to know better than us, and you take their info as being black and white, whereas now they seem to be quickly reversing their role, because they don’t want to be held liable for negligence which in my opinion, they blatantly are,” another attendee alleged.

Responding to Gloster’s comments, an FCA spokesperson said: ‘“We are supporting her fully with her work and welcome the opportunity that today’s meeting gives for bondholders to be heard.

“The issuance of mini-bonds is generally not a regulated activity and we are taking action where we have the power to in order to protect customers, as evidenced by our ban on the promotion of speculative mini-bonds to retail consumers.”