The Financial Conduct Authority’s Regulation of London Capital & Finance plc Contents


The collapse of London Capital & Finance is due to one of the largest conduct regulatory failures of the last three decades and is one of only three that has led to a Government compensation scheme. Dame Elizabeth Gloster’s investigation has highlighted a range of changes needed at the Financial Conduct Authority under its new leadership. This report highlights some further recommendations for both the regulator and the Treasury.

Culture at the FCA

We welcome the FCA’s ongoing transformation programme which has cultural change as one of its priorities. We however note that the FCA has undergone numerous structural and operational changes since its inception, with more changes expected as part of the ongoing transformation. We recognise that culture change takes time but recommend that the FCA Board sets itself an end date for the transformation programme and that it creates milestones at which improvements and evidence of changes in culture can be reviewed. These milestones and reviews should be put into the public domain. At the completion of the transformation programme, the FCA should ensure it has in place measures that will ensure that its improved culture is maintained and embedded.

The FCA should ensure that it keeps its contact centre policies and training up to date to ensure clarity and consistency, not just in relation to firms such as LCF but to the wider organisation.


We believe that the FCA was wrong not to have engaged in a fuller recruitment programme for the Executive Director for Transformation role, including the consideration of potential recruits from outside the FCA. It appears that there was a missed opportunity to consider fresh leadership for the Transformation programme.

Given that Dame Elizabeth’s report cited Megan Butler as bearing responsibility for important areas of failure and that her recruitment was conducted internally with just one alternative candidate, we understand why many will feel that “a buck that does not stop with an individual stops nowhere” when it comes to the personal consequences for those involved with the failings at the FCA in relation to LCF. We recommend that the default position should be that the FCA take a holistic approach when recruiting for critical roles, rather than engaging in a restricted recruitment process.

It is not readily justifiable for the FCA to require the firms that it regulates to adhere to the principles of the Senior Managers Regime but seemingly not to apply similar principles internally when there are failings of practice and culture in the organisation. The FCA Board should reflect on whether it has, in this case, met the standards which it seeks to impose upon others. We believe that there are doubts as to whether it has.

Perimeter of regulation

The “halo effect” appears to be inevitable as long as authorised firms also carry out unregulated activities. We reiterate the recommendation made by our predecessors that the FCA should ensure that it requires authorised firms to make clear explicitly the risks to customers associated with their unregulated activities.

In future, the FCA should set out in its annual perimeter report how its supervisory strategies and policies reflect the activities of authorised firms both within and outside the perimeter.

Any changes to the perimeter must be matched with appropriate changes in the FCA’s resources, and the FCA should republish its priorities. The Treasury should publish a policy statement on how it will analyse changes to the FCA’s perimeter and what factors it will take into account.

Regulation of mini-bonds

In light of the recent failings of several mini-bond issuers and the nature of the existing regulatory arrangements, the Treasury should proceed with its analysis as soon as the consultation on the regulation of non-transferable debt securities closes, and it should aim to publish the outcome by the end of September 2021. In publishing its response, it should also publish a way forward that can be implemented rapidly.

Financial promotions

We welcome the steps taken by the FCA to change its approach to financial promotions, as well as introducing the “use it or lose it” programme. In future, the FCA should be more interventionist and should make more frequent use of its powers rather than maintaining a culture of risk aversion.

The Treasury should—as a matter of priority—re-evaluate the Financial Promotion Order exemptions to determine their appropriateness and consider what changes need to be made to protect consumers.

Online Safety Bill

We recommend that the Government should include measures to address fraud via online advertising in the Online Safety Bill, in the interests of preventing further harm to customers being offered fraudulent financial products.

Pending any legislative changes, the FCA should continue to work with online platforms such as Google to remove misleading and fraudulent adverts as quickly as possible, to protect customers from scams.

Published: 24 June 2021 Site information    Accessibility statement