The Treasury should consider punishing the governor of the Bank of England for his mishandling of one of the biggest investment scandal in decades, according to the head of the independent inquiry into the matter.
Dame Elizabeth Gloster told MPs on Monday that the chancellor and senior leaders at the Financial Conduct Authority should consider “consequences” for three individuals named in her report into the collapse of London Capital and Finance (LCF). Potential punishments could include pay cuts or bonus clawbacks.
LCF raised £237m from more than 11,000 investors, many of them pensioners who were misled about the true nature of the investment. The investment company collapsed in 2019 and investors now face the prospect of getting back pennies in the pound.
The Financial Conduct Authority (FCA), Britain’s financial watchdog, was meant to be overseeing LCF prior to its collapse. Andrew Bailey, who is now the governor of the Bank of England, was in charge of the FCA at the time.
Dame Gloster led an independent inquiry into LCF’s collapse and published a report in December that was highly critical of the FCA and Bailey. Dame Gloster told MPs on Monday she had “serious criticisms” of the organisation and its leadership.
“Those who, I hope, will be informed by my report will need to consider what are the appropriate consequences in the light of the criticisms which I have made, in relation to the organisation and individually,” she told the Treasury Select Committee.
“I do think it’s a matter for which consideration should be given, not by me but by the chairman and the CEO of the FCA and the Treasury, as far as the Bank of England is concerned.”
Dame Gloster declined to say what she deemed appropriate punishment but, when asked about the FCA’s decision to withhold bonuses for key executives, she said: “I do think that’s appropriate.”
Her report singled out three individuals at the FCA for criticism by name: former chief executive Andrew Bailey; former head of supervisions Megan Butler; and outgoing executive director of supervision, retail and authorisations Jonathan Davidson.
There was “quite a lot of pushback” to the decision to name individuals, Dame Gloster said. She said she was “quite irritated” and “quite surprised.”
“I did think it was appropriate to apportion responsibility to particular individuals because the FCA itself requires firms it authorises or supervises to have senior manager responsibility statements so that when something goes wrong it is clear who bears responsibility,” she said.
Bailey, who last March became Bank of England governor, apologised for his role in the scandal in December. He said he had inherited a historically dysfunctional organisation that contributed to the failures.
“It’s not an adequate or reasonable excuse to say: if only LCF had happened a bit later, all the changes we would have put in place would have stopped it from happening,” Dame Gloster said on Monday. “These were defects that we didn’t think were being picked up by the change programme.
“It is my view and the view of the report that these issues weren’t addressed and weren’t fixed within a reasonable time frame.”
Failings included the lack of proper complaints handling, which Dame Gloster dubbed “appalling.” The attitude of the FCA board to problems was “just letting it all drift on,” she said.
“If there’d been a joined up system, things might have been very different, would have been very different I think,” Dame Gloster said. “LCF was frequently breaching the financial promotion rules but nothing was done about it. If that information had been put together with other information, something might have been done much earlier.”
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