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Finance watchdog defends promotion of staff damned in LCF report

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·3-min read
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Megan Butler, the FCA's executive director of transformation. Photo: FCA
Megan Butler, the FCA's executive director of transformation. Photo: FCA

Senior leaders from the UK's Financial Conduct Authority (FCA) have defended the decision to promote a senior leader who was involved in the failure to properly regulate London Capital & Finance (LCF), the consumer investment company that collapsed in 2019.

LCF collapsed after raising £237m ($331m) from more than 11,000 UK investors, most of them small time savers and many of them pensioners. The collapse is being investigated the Serious Fraud Office.

An independent report published in December was highly critical of the FCA's failure to spot problems brewing at LCF and concluded the regulator had failed in its duty to protect consumers. The report singled out three individuals for blame, including Megan Butler who was at the time director of supervision for investment, wholesale and specialists.

READ MORE: Bank of England governor damned over £237m London Capital & Finance collapse

Butler was promoted to the role of executive director of transformation last November despite her role in the LCF saga. Butler is now in charge of overhauling the FCA and improving standards across the organisation. She is one of just six people on the FCA's executive committee.

FCA chief executive Nikhil Rathi and chair Charles Randell were grilled by parliament's Treasury Select Committee on Monday as to why Butler had been promoted.

Rathi, who took over in charge of the FCA last October, said he was aware of Butler's involvement with LCF but concluded that an internal candidate was needed for the transformation role.

“It was a desire from my part to get moving quickly… therefore an internal hire was the right choice," he told MPs.

“I believe she does recognise the mistakes that have been made," Rathi said of Butler. “She also brings over three decades of very deep experience in financial regulation and policymaking."

READ MORE: Bank of England governor should face 'consequences' for LCF failings

Rathi said Butler was the "best candidate" for the job but admitted that just two people applied for the transformation role after an internal search. He said he wanted to maintain “institutional memory,” particularly during the external turbulence of COVID-19 and Brexit.

Randell said Butler's actions “did not amount to serious culpability” and therefore the board concluded she did not need to leave the organisation.

The FCA's board concluded that senior leaders should face collective consequences for the operational failings that led to the LCF scandal, Randell said. Performance bonuses were scrapped last year and have been scrapped moving forward. Senior pay has also been reduced.

READ MORE: London Capital & Finance victims begin legal fight for compensation

Randell agreed with Rathi that an internal hire was needed for the transformation role, saying an external candidate would have delayed the transformation push by up to a year. The transformation programme a response to previous failings such as LCF, which have arisen due to operational issues.

"I felt that it was really important that I do what I believe was in the interests of the FCA and not what would give me an easy ride in this conversation and that’s what I believe I’ve done," Randell said. "My commitment is to try and get things done as quickly as possible."

Butler and Jonathan Davidson, another director of supervision singled out in the report, had "huge remits" and "did a very good job" in many areas," Randell said.

Randell was "deeply conscious" of impact the FCA's failings had in the LCF case and he said he was "profoundly sorry".

"The buck stops with me," he told MPs.

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