Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)

Gareth Thomas Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[The Chair]

Thank you. I call Gareth Thomas—you have six minutes.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Q Thank you, Ms Ghani. I would like to take you back to the FCA’s handling of the consumers who phoned up the FCA about London Capital & Finance. Can you tell me whether there was ever a meeting between FCA officials and some of those customer investors—unsophisticated or sophisticated, depending on the language that the FCA might want to use? Was there ever an actual meeting that took place between FCA officials and those customers?

Sheree Howard: Could I ask for clarification? Are you asking about during the time that LCF was in operation, or subsequently?

[Gareth Thomas]

First, during the time that LCF was in operation.

Sheree Howard: I am not aware of any, but I would need to go and check that.

[Gareth Thomas]

Q Has there been any meeting with them subsequently, perhaps to help with the lessons learned process within the FCA?

Sheree Howard: I think there has been, but I would need to go and check the details on that and get back to the Committee separately, if that is okay.

[Gareth Thomas]

Q Moving forward, do you think that if a substantial number of consumers got in touch to raise concerns about the way a particular financial services business was operating, it would be sensible for the FCA to meet those consumers or just deal with them over the telephone or by letter?

Sheree Howard: As part of our transformation programme, we are considering our approach to consumer engagement and what that looks like, recognising some of what we have seen here and making sure that we are serving the UK public in the best way we can, both through information provision and by ensuring that their voices are heard.

[Gareth Thomas]

Q With due respect, you have not really answered my question, so let me ask you specifically: if a series of consumers phoned up separately to raise concerns about the way a major financial services business was operating, would you seek to meet them to try to guide your handling of the issues around that financial services business?

Sheree Howard: Our focus initially would be to gather that intelligence and use it as quickly and urgently as possible to act against whatever has been raised. That would be our primary focus—making sure that we gather as much evidence or intelligence from them as we can.

[Gareth Thomas]

Q So you would gather the intelligence and the data, but if they asked for a meeting with you, would you turn that request down or accept it?

Sheree Howard: I am sure we would consider it. From my perspective, of course we want to listen to them, and we would offer to meet them, if they wish to.

[Gareth Thomas]

Q But you would meet the representatives of the business if they asked for a meeting.

Sheree Howard: For the businesses that we regulate, authorise and supervise, yes, we would. As I said, we would take it into consideration and—potentially do what we do with whistleblowers, for example,

[Gareth Thomas]

Q But you would accept that there is a risk of a disconnect between the way in which you handle the business owners or business management and the consumers of the business. You might agree to meet the consumers, but you might not. But you would meet the business.

Sheree Howard: I think I ought to clarify. Obviously, meeting with lots of individual consumers would take a very significant amount of resource. We do meet groups of consumers on occasion to hear concerns. We meet lobby groups, consumer networks and things like that, to hear those consumer voices. We obviously also have a consumer panel, so we meet ranges of consumer representatives in a number of circumstances. If you are asking me whether we would meet every consumer who phones up or who asks to phone up, that would be slightly more difficult. We do on occasion—for example, under the complaints scheme—meet a consumer who has a complaint, if that is the best way for them to get their concerns across. It is very individual and depends on the circumstances.

[Gareth Thomas]

Q Okay. One of the other criticisms that Dame Elizabeth Gloster made was around the policy papers that were produced and the way they dealt with fraud. Can you tell me how those policy papers are being handled now? Are they still in use? Has the process of writing them been reformed in any way?

Sheree Howard: In any initiative we are very focused on its operationalisation. When a paper comes through, we are very focused on what would happen once that policy goes live—our ability to supervise through it and how it would be implemented in the organisation to make sure it is as effective as it can be.

[Gareth Thomas]

Q The reason I asked that is because one of the biggest issues before the FCA in terms of its handling of consumers is the question of the demutualisation of Liverpool Victoria. I have searched the FCA website, as have others, and cannot find any policy paper at all on how the FCA will handle the consumer issues involved in the demutualisation of a major business. Why is that lacuna in existence?

Sheree Howard: I am aware that the FCA has met you about this area. I am very conscious that there will be future discussion between the EST and our CEO Nikhil Rathi on that matter. We have clear guidance about how we handle part VIIs and the role of the independent expert in those, which LV would go through if it went through a demutualisation process.

[Gareth Thomas]

Q Would you be able to show me that guidance?

Sheree Howard: I will find what we have and send it to you.

[The Chair]

Ms Howard, you responded to Mr Thomas’s first question by saying that you would write to us. May I point out to you that you must write your response to both questions today? Minister Opperman, do you have any questions?

--- Later in debate ---

[The Chair]

I call Mr Gareth Thomas.

[Gareth Thomas]

I apologise, Ms Ghani. I mis-spoke earlier; it is probably a lack of practice. My questions actually relate to the third group rather than this one.

[The Chair]

No problem. I now come to Minister Opperman.

--- Later in debate ---

[The Chair]

I now call Mr Gareth Thomas. You will be pleased to know the witnesses are with us until 11.25 am, Mr Thomas.

[Gareth Thomas]

Q Thank you, Ms Ghani. Dame Elizabeth, can you tell the Committee whether you are confident that there is now at the FCA a proper audit and lesson-learning process from each financial regulatory case that they handle?

Dame Elizabeth Gloster: I do not think I am in a position to do that for this reason: I produced my report and recommendations. I presented to the new chief executive officer at the FCA, to some of his senior staff and to the non-executive directors. As you know, the FCA at all levels has accepted the recommendations in my report. It has said that it is addressing the problems but my team and I have not been tasked—I say that thankfully, I think—to go in and conduct a subsequent audit of whether our recommendations have, indeed, been implemented, so that what we identified as systemic failures have been addressed. As I already said in a previous answer and I said in my report, I believe that the implementation of the recommendations should be closely monitored and should be audited to ensure that things have changed. However, I am not in a position to know that.

Dorothy Cory-Wright: May I add one point on that? I want to point out that Dame Elizabeth’s work concluded in the time period January 2019 and we were also told subsequently by the FCA, which we have not verified independently, that work had been going on during the period prior to our recommendations being made. It may be that that has been the subject of internal audit, but we just do not know about that.

[Gareth Thomas]

Q Presumably, though, Dame Elizabeth, given how much time you put into the report, just professional curiosity might mean that you would want to know whether there has been the scale of cultural change that you identified as the top lesson to be learned from the LCF scandal. I ask whether the new chief executive of the FCA has offered to meet you to try and explain the scale of cultural change that has happened subsequent to your report.

Dame Elizabeth Gloster: We certainly had a meeting, as I said a moment ago, with the new CEO. As I said in my report, the FCA’s response should involve an assurance exercise to confirm that any steps taken have achieved the desired objective. Indeed, it is important and was a significant feature of my report that there should be some sort of audit process that would be made publicly available.

[Gareth Thomas]

Q Okay. I want to ask the Transparency Task Force witnesses: one of the issues before the Committee, as you rightly identify, is whether anything like the LCF scandal could ever happen again in the future. Let us take a hypothetical example. Say there is a major financial services business with more than a million customers. Its board said one thing to its customers—indeed, its leadership said it vigorously over a period of time—only then to advocate the complete reverse of that within the space of 12 months. Is that the sort of thing you would hope the FCA nowadays would properly regulate and would not be too worried about perimeter issues?

Andy Agathangelou: I do not think we need to talk hypothetically about whether there is a chance that a case like LCF could happen again. We believe cases—plural—like LCF are happening right now and we have evidence to support that claim. I will pass over to Mark for any further comments that he would like to make, but I will commit to providing all the Committee members with evidence relating to a range of issues that I believe will lead to the conclusion that this is a very serious problem that has not yet gone away. It is happening now.

Mark Bishop: I agree with that. I would just like to give you a few examples of what I mean. I would like to pick up on something that Dame Elizabeth said, because I strongly agree with it, which is that the single biggest problem that the FCA has is cultural. The problem with cultural change is, first, it takes a while to fix, even if you are trying to fix it. Secondly, the closer you are to it, the harder it is to spot the problems, let alone know how to fix them.

One of the first things that Nikhil Rathi did in response to the two independent reviews published in December was to announce the appointment of an executive director for transformation. This is a new role that has never existed before. He did not advertise the job externally. He gave it to Megan Butler, and Megan Butler is a name that is mentioned in Dame Elizabeth’s report as one of the people who held a position of responsibility in relation to LCF. She does not apportion blame specifically, but she does apportion responsibility. I believe that had Raj Parker not succumbed to FCA lobbying to also redact the names of executives, her name would have appeared in that document as well. She may be a highly intelligent individual and acting in good faith, but she was literally a founder employee of the Financial Services Authority in 2000, and I would question whether a fresh pair of eyes and a fresh mind might be better suited to the job of transforming the organisation.

To use the hypothetical example of whether something similar might happen again, Dame Elizabeth helpfully pointed out in her report that, prior to the summer of 2016, LCF did not have authorised status from the FCA, and therefore it had to get its promotions approved by a third party that was on the register. This was a firm called Sentient Capital London Ltd. The first complaint or notification into the FCA that there were concerns about whether those promotions were accurate happened in January 2016, five and a half years ago. I looked on the FCA register just last Friday when I knew I was coming to this session to see whether there was any investigation under way against that firm or its directors, or whether it had a limitation attached to its registration that meant that it could not approve promotions for third parties, and I found that none of those things has happened.

So not only could another LCF happen, but it could happen using one of the same firms today, five and a half years on, and that seems to me an example of the complacency of the FCA that is, in the view of most campaigners, culturally where the problem is. Also, Gareth Thomas talked very early on in this evidence session about the voice of the consumer and to what degree are consumers’ voices being heard in the FCA. I think a genuine transformation of the FCA would have consumer voices, including campaigners, very much at the heart of it, and I do not think that that is happening.

[Gareth Thomas]

Q Thanks very much. I want to come back to the extent to which consumer voices get heard. Dame Elizabeth, can you or members of your team set out for the Committee whether there ever were meetings between the FCA and the groups of customers of LCF who were complaining about its products and its mis-selling?

Dame Elizabeth Gloster: Between the FCA and bondholders and LCF? You mean after the company became insolvent or—

[Gareth Thomas]

And before, because there was a pattern of customers trying to get in touch with the FCA to complain about LCF’s products. I am interested to know whether there was ever any attempt to meet that group of customers by relatively senior people within the FCA.

Dame Elizabeth Gloster: Let me answer that in this way. First, it is clear, as my report sets out, that a lot of complaints were made or questions raised by consumers and bondholders, or prospective bondholders, and they were not dealt with adequately. There is a full chapter dealing with that. One of the criticisms that I made was that the communication or the recording of complaints was not adequate. I will ask John Bedford to come in here, but I do not think that there was, before the company went into administration—or was shut down, effectively, by the FCA—any meeting with groups of bondholders. John, can you help me on that?

John Bedford: Of course, Dame Elizabeth. As far as we are aware in relation to the intervention in 2019, there were no meetings between bondholders, or groups of bondholders, and the FCA.

[The Chair]

Mr Thomas, can you make this your final question, please?

[Gareth Thomas]

Sure. The biggest issue for the FCA in terms of particular cases at the moment and consumers is, as I understand it, the potential demutualisation of Liverpool Victoria. I wonder whether any of the witnesses find it extraordinary that no policy paper has been published by the FCA on the handling of demutualisations.

[The Chair]

Mr Thomas, I am afraid your current question is not within the scope of the Bill, so unless you have another question to ask, I will move to another Member.

[Gareth Thomas]

That is fine.

[The Chair]

Thank you. Minister Opperman, we have four minutes.