The watchdog that oversees financial regulators has criticised the Financial Conduct Authority (FCA) for repeating failings from the Keydata saga of 2009 in two of the most high-profile collapses of the last decade, which cost investors hundreds of millions of pounds.
The repeated failures occurred in the oversight of the Connaught Income Fund Series 1 collapse in 2012 and London Capital and Finance (LCF) scandal in 2019 which cost investors more than £350m combined.
Complaints Commissioner Amerdeep Somal alarmingly highlighted that the FCA had failed to learn from predecessor the Financial Services Authority (FSA) which was regulator during Keydata’s collapse.
The failure of the investment firm in 2009 eventually resulted in around £330m being paid out by the Financial Services Compensation Scheme (FSCS).
However, Somal criticised the FCA, which replaced the FSA in 2013, for committing similar errors in regulating the Connaught Income Fund Series 1 and LCF, and said she would be watching how the regulator addressed the issue.
Issues ‘recurred in similar form’
In her annual report published yesterday, Somal discussed the FCA’s regulatory oversight and referenced complaints which had been resolved earlier this year concerning its role in the Keydata collapse
She tied findings from these complaints into independent reports published regarding the oversight of Connaught and LCF.
“While acknowledging that the events occurred many years ago and that the FCA has implemented significant changes since then, the impact of the distress caused to these complainants cannot be underestimated,” she said.
“The commissioner is further concerned that some of the issues identified by the FSA in 2009, about its supervision of Keydata, recurred in similar form in the FCA’s oversight of the Connaught Income Fund Series 1 and LCF.
“Over the coming year she will be monitoring closely the improvements the FCA is seeking to make through its transformation programme as well as the recommendations it has accepted in her final reports on the Keydata complaints.”
In those complaint resolutions the commissioner told the FCA to compensate the complainants further for the harm they suffered and criticised the regulatory oversight at the time.
The annual report is Somal’s first after she took over the role in November.
‘Reviewed the lessons’
In response, the FCA said it accepted all the recommendations and lessons learned from the independent reviews into the collapses and was providing public updates on its progress.
“We note the commissioner references that previous investigations by her predecessor identified similar concerns and some issues were also evident in the investigation of Keydata which relates to actions of the Financial Services Authority between 2002 and 2009,” it said.
“We have reviewed the lessons from the investigation of these complaints in the context of our current activity to address the issues raised in the Independent Reviews.
“Since the end of the reporting period we have also updated on our approach to handling the deferred complaints relating to LCF and Connaught.”
