HM Treasury has launched an investigation into the collapse of investment firm London Capital & Finance, which will probe the actions of the Financial Conduct Authority.
The independent review, which will be lead by Dame Elizabeth Gloster and is expected to take 12 months, will investigate the circumstances surrounding the failure of LCF, which went into administration in January owing £236m to more than 11,000 investors.
The probe will also put the FCA under the microscope to review how the watchdog exercised its powers and whether it fulfilled its statutory objectives.
Nicky Morgan MP, chair of the treasury committee, questioned the 12 month deadline, saying investors need answers "urgently".
"This cannot be kicked into the long grass. The FCA, HM Treasury and Dame Elizabeth must think innovatively about how the investigation can report quickly," she said.
"As the Serious Fraud Office (SFO) is also investigating events surrounding LCF, innovative solutions will also be needed to ensure there is maximum transparancy".
John Glen, economic secretary to the Treasury, announced today that a wider policy review will also take place to investigate the regulations surrounding mini-bonds and other non-transferable securities.
Glen said: “We urgently need to get to the bottom of the collapse of LCF.
“Dame Elizabeth will bring her vast experience and rigour to this important investigation, which will help ensure this type of thing doesn’t happen again.
“The Treasury will also be looking at how the current regime for these investments works, so customers are properly protected and the UK’s financial system can continue to be one of the safest in the world.”
Investors criticised the FCA, and auditors EY and PwC for failing to intervene in the regulated firm sooner after the company entered administration.
At a meeting last month furious investors said they had been “sold down the river” and questioned why the firm had not been shut down earlier.
FCA chair Charles Randell said: “This investigation will establish what happened with LCF and whether further regulation changes are required.”