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Parliamentarians have published a damning report accusing the Financial Conduct Authority of “deep-rooted cultural problems” that expose the public to harm, and are calling for wholesale reform of the regulator, including the creation of a department for scam victims. The FCA has said it strongly rejects the characterisation of the organisation.
The report published on Tuesday paints a picture of a regulator failing consumers and businesses. The All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services which commissioned it said the report came about because of “widespread criticism of the regulator from a range of independent sources”. The 380-page document contains statements from over 170 people, including current and former FCA staff.
APPG co-chair Bob Blackman noted that the FCA reacted to criticism it has received by launching a transformation programme but said responses to the APPG’s call for evidence indicated that this had been “a failure”.
“The FCA’s deep-rooted cultural problems, described so forensically by the series of external reports, are still there,” Blackman said.
The Conservative MP for Harrow East added: “The government has reasons for concern in that the trust deficit in financial services is acting as a brake on growth, the opposite of what any administration wants for the economy.”
The report therefore recommends several legislative changes, including:
establishing a Financial Regulators’ Supervisory Council;
removing the FCA’s immunity from civil liability to consumers;
changing the way the FCA is funded;
changing how the senior leadership team is appointed;
setting up a new NGO to act as a counterweight to industry lobbying;
potentially replacing the FCA’s leadership team; or
having a Royal Commission for radical architectural reform, “if all else has failed”.
One MP believes savers and investors are left at risk because of the issues described in the report. Ben Lake said the level of financial crime that ordinary people are exposed to "is totally unacceptable”.
The MP for Ceredigion Preseli added: “Whilst I don’t just hold the FCA responsible for this failure to protect, it is a matter of fact that the FCA has a duty through parliament to provide an appropriate degree of consumer protection.”
An FCA spokesperson said: “We sympathise with those who have lost out as a result of wrongdoing in financial services, however we strongly reject the characterisation of the organisation. We have learned from historic issues and transformed as an organisation so we can deliver for consumers, the market and the wider economy."
The FCA charged 21 individuals with financial crime offences in the last financial year, the highest number of charges in any single year to date, and operates ScamSmart, a warning tool for consumers. The rate of growth in the number of investment fraud victims slowed from 28% in 2021 to 4.2% in 2023.
BSPS scandal cited as a case in point
The MPs’ report published today considers the British Steel scandal among others, where about 8,000 people transferred out of their final salary pension fund, many of them poorly advised, even though 95% had received regulated advice, with some subsequently falling prey to investment scams.
The National Audit Office produced a report about the scandal in March 2022, which according to the APPG shows that “for each of the courses of action available to the regulator, five years after the transfer activity peaked, the number of concluded cases was either zero or one”, although that list does not include firms voluntarily withdrawing from the market because of FCA intervention. The MPs’ report includes extensive and sometimes harrowing testimony from people recounting how they felt they were ignored or even exposed to harm by the regulator when they highlighted potential conflicts or crime.
Among others, the report recommends the FCA should create a department for scam victims, who often suffer not just financially but mentally because of the harm suffered. Ian Davis, a victim of the London Capital & Finance Ponzi scheme, committed suicide last year. He is among those who shared their testimony, and the report is dedicated to his memory.
An NAO report about the FCA from December last year found “there can be a significant delay between the FCA identifying an issue to tackle, and it taking regulatory action”. It noted that the regulator was “attempting a significant amount of change, on a number of fronts, all at the same time”, adding that “this brings risks”.
