LC&F collapse calls the regulator's competence into question

The official investigation into the collapse of London Capital & Finance, the investment firm that went bust owing £236m to 11,500 ordinary savers, is the most important financial inquiry since the banking crisis. As with the broken banks, the central questions aren’t simply about how to fix the regulatory system. The basic competence of the regulator – the Financial Conduct Authority – is also in the spotlight.

Dame Elizabeth Gloster, a former court of appeal judge, will lead the inquiry and, as far one can tell, is a good independent appointment. Her former career included wading through Russian oligarchs’ complex multibillion claims against each other. Getting to the bottom of LC&F’s world of “mini bonds” ought to be a breeze, provided she gets the right secretariat.

One shortcoming exposed by the scandal is clear. LC&F itself was regulated by the FCA from June 2016, but the actual “mini-bonds”, marketed with interest rates of up to 8%, were unregulated. Such an arrangement, which could almost be designed to sow confusion in the minds of investors, surely has to end.

The outline of the case against the FCA is also well-rehearsed. Was the regulator deaf to warnings about LC&F, which independent advisers say they issued as early as November 2015? Why was the firm authorised in the first place? What checks were made on key directors? And why did it take until December 2018 for the FCA to order LC&F to withdraw “misleading, unfair and unclear” marketing literature?

Dame Elizabeth, no doubt, will find more territory to explore without treading on the toes of the separate Serious Fraud Office inquiry. But Nicky Morgan, chair of the Treasury select committee, makes a fair point when she says a 12-month deadline to report is generous.

Even a speedy inquiry probably wouldn’t arrive before Philip Hammond (or his successor?) appoints the next governor of the Bank of England, a relevant point since Andrew Bailey, the FCA chief executive, is a frontrunner with a big LC&F question mark over his candidacy.

But the various banking inquiries took an age, and some haven’t been published yet. Dame Elizabeth has a chance to show how it should be done – quickly.

ValueAct’s long bleat about very little

Long days spent at Alton Towers and LegoLand can be boring, or so US hedge fund ValueAct, owner of a 9.3% stake in global theme park operator Merlin Entertainments, feels. The Americans have been hanging around since 2017 and want to see some action in a share price that, unlike the rollercoasters, has barely gone up or down.

“Merlin should evaluate a public-to-private transaction”, declares ValueAct in an open letter to the board. OK, but whose buyout proposal does it think Merlin is resisting?

It doesn’t. ValueAct merely “believes” there could be interest. Merlin was backed by buyout barons before it floated in 2013, so the idea isn’t entirely fanciful. But until somebody bangs on the door with a proposal, the directors are under no obligation to waste time playing games of imaginary deal-making.

Indeed, ValueAct has probably sent its letter to the wrong people. The family behind the Lego fortune own 30% of Merlin, and not much can happen without a nod from Denmark.

In the meantime, the job of the Merlin bosses is to run the business. On that score, even ValueAct likes what it sees. It agrees with Merlin’s strategy and thinks the new theme parks will yield high returns on capital. It just fears it will take “several years for Merlin to be appropriately valued by public shareholders”.

In other words, the letter is merely an extended bleat about the current share price. Come on, you’re a fund that boasts about “investing for the long term”. If you do, and if you really think Merlin is worth £1bn more than the current £3.5bn market value, then buy some more shares and wait for the higher valuation to emerge. Or organise a bid yourself. Alternatively, refrain from writing pointless letters.

The Greens will have to listen to the Pensions Regulator

“We do not consider the proposals are sufficient to ensure that members of the [pension] scheme are adequately protected.” So says the Pensions Regulator about Sir Philip Green’s planned restructuring of his wife’s Arcadia empire. Since the regulator has formal powers to force the company to ensure that its pensions are properly funded, that’s serious.

It’s hard to tell if the problem is the size of proposed payments or the fact that Monaco-based Lady Green, as opposed to Arcadia, would be responsible for £100m. Either way, the Greens will have to do better. There’s little point trying to sweet-talk the landlords if the Pensions Regulator says no.