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

Debate between Rehman Chishti and Kevin Hollinrake

Report stage & 3rd reading
Wednesday 22nd September 2021 Commons Chamber

[Kevin Hollinrake]

Anybody reading the report will be appalled by the regulator’s performance in this case, given not just the number of complaints about LCF but the lack of joined-up thinking within the FCA. This was some years down the line; it happened after Andrew Bailey had taken over at the FCA. He knew there were problems right at the start, but there was no joining of the dots and there were the clear allegations of inappropriate conduct within LCF. The independent financial adviser who drew attention to it was a very competent person; he was not simply raising the issue saying, “I don’t like this company.”

The IFA was called Neil Liversidge. He wrote to the FCA setting out exactly what was going wrong with the designation of unsophisticated investors as sophisticated, the encouragement to class themselves as sophisticated, and where some of the investments were going. It was pretty clear what the problem was at LCF, and the FCA failed to act. That is simply unacceptable. That is why I welcome the compensation. However, it still has to be down to investors to make an educated decision. Certainly my constituent and others I have seen could see that this was not a Government gilt they were investing in; there were obviously some risks attached.

[Rehman Chishti]

My hon. Friend says that he welcomes the compensation that is being made. Of course, so do I and so does everybody else here, but linked to the question of compensation is justice and the delay in bringing the perpetrators to account through the investigation by the Serious Fraud Office. I would be grateful if the Minister or my hon. Friend could say why there is such a delay in to bringing those perpetrators to account, because people want compensation but they also want justice and to have the perpetrators brought to account.

[Kevin Hollinrake]

I could not agree more. The UK has a pretty poor record in terms of bringing forward fraud prosecutions. There are a number of things we need to do that are not really within the scope of this Bill. Not the least of them —the Government are committed to this—is bringing forward an offence of a failure to prevent an economic crime. That would make it far easier for the SFO to bring forward prosecutions. I would welcome my hon. Friend’s joining my campaign to bring that legislation forward, because it would make a huge difference to the SFO’s ability to bring forward speedy prosecutions.

[Rehman Chishti]

I am very happy to support my hon. Friend’s campaign to ensure that justice is done in this case.

[Kevin Hollinrake]

That is very welcome.

The key point in the amendment is about oversight. I am concerned that the FCA is not as accountable as it could be to this House. With repatriation, a number of regulations and regulatory oversight of the FCA have now passed back to us domestically whereas before there was accountability through the EU institutions. I am concerned that we have proper oversight of what the FCA does. The hon. Member for Glenrothes and the hon. Member for Harrow West (Gareth Thomas) are quite right: the jury is still out on the FCA. It has made some bold claims that it is reforming and becoming more effective. I welcome the fact that only a couple of weeks ago it set out some clear targets for a reduction in the number of investors investing in high-risk investment and being subject to scams. There are some specific criteria that the House can now hold it to account for; I am just not clear how we do so. I can see how the Treasury does so, but it is important that the House can, too.

In the work that I have done on the all-party parliamentary group on fair business banking, we have seen numerous cases in which the FCA has not been proactive or used the mechanisms at its disposal to sanction the people responsible. That is simply unacceptable. The FCA must be a much more proactive organisation and, for it to be held account for such proactivity, we need a clear line of responsibility between it and the House and its Members. The amendment is a good attempt, but not one that I can support.

[Gareth Thomas]

I am sympathetic to the broad thrust of the amendment tabled by the hon. Member for Glenrothes (Peter Grant) and his concern, which I alluded to in my intervention, that the Government, and certainly the FCA, appear to be saying, “Don’t worry—we’ve had a change of leadership and everything is going to be all right now. You don’t need to worry about the quality of the regulation of investment firms going forward, or the implementation and enforcement of consumer financial regulation, whether in this case or more generally.” I have some sympathy with the point of the hon. Member for Thirsk and Malton (Kevin Hollinrake) that we should be sceptical about such a claim. It is good that Treasury Ministers will be having a more regular dialogue with the FCA, partly as a result of this scandal.

As the House knows, I have taken a particular interest in the demutualisation of Liverpool Victoria. That is very different from the case of LCF, so it would not be appropriate for me to go into the particular details, but there are parallels in the treatment of Liverpool Victoria consumers and those of LCF products. Some of those parallels relate to the culture that appears to exist within the FCA. The all-party parliamentary group for mutuals received a letter from the FCA and one from the PRA, and they reveal that there have been almost 60 meetings between the regulators and the board of Liverpool Victoria, but not one meeting with its consumer-owners on its demutualisation. I wonder whether there is not a frog in hot water-type problem here, with the FCA so close to the Liverpool Victoria board in this case—and potentially to other financial firms—that it fails, perhaps accidently, to do its job on behalf of consumers with sufficient robustness.

I welcome the Dame Elizabeth Gloster report, which was excoriating in its findings. To pick out some key concerns, it said that there were “unclear” policy documents for use by FCA staff, a

“flawed approach to the Perimeter”

and a “failure to consider” the behaviour of particular businesses holistically. It also said that there was insufficient training of staff and pointed to confusion between Her Majesty’s Revenue and Customs and the FCA—our regulators—over the handling of particular issues.

I appreciate that the FCA has not only had a change of personnel but brought forward proposals for a consumer duty to try to rebuild some confidence. However, my problem with the duty, which it consulted on until the end of July, is that there is no sense of understanding the difference between consumers who also own a business—a mutual in this case—and consumers per se, or a willingness to take additional actions for consumers who are also owners. I worry about whether that additional duty will be robust enough.