The UK’s financial regulator stands accused of unlawfully changing the rules of its compensation scheme to avoid payouts to victims.
The FCA allegedly changed its complaints scheme as it was facing claims from savers who lost a total of £237m in the collapse of investment firm London Capital & Finance in 2019. The watchdog is being investigated by the Financial Regulators Complaints’ Commissioner over the controversy with a draft report concluding the FCA covertly changed its complaints scheme “via the backdoor.”
The FCA insists it did not change its rules. “The statement we issued in June 2020 did not introduce any new test but instead set out our longstanding approach to offering payments in recognition of financial loss. There has been no change to the substance of the test and LCF complaints are being considered under the existing scheme,” an FCA spokesperson said.
“It has already been agreed that investors who have experienced losses as a result of the collapse of LCF are able to receive compensation from either the government compensation scheme or the Financial Services Compensation Scheme,” they added.
The FCA is responsible for compensating victims of financial loss resulting from failures in the regulator’s safeguarding duty on an ex gratia basis. In June 2020 guidance was published on the FCA’s website stating that consumers would only be entitled to payouts when the regulator was “solely or primarily” responsible for losses.
In the case of the London Capital & Finance collapse the FCA maintains that it is the company’s directors who were ultimately responsible for selling mini-bonds to investors who have been left out of pocket. While more than 1,000 victims of the LCF scandal have complained to the FCA most have been refused compensation.
Amerdeep Somal, the Financial Regulators Complaints’ Commissioner, is investigating the refusals with a confidential draft report of her preliminary findings, first reported on in the Observer, saying the watchdog tried to make changes to its complaints scheme “via the backdoor” which appeared “contrary” to its statutory purpose.
The Financial Services Compensation Scheme has now paid out £57.6m to 2,871 LCF bondholders while HM Treasury has announced its compensation scheme will begin pay outs to investors later this month.