Collapse of odious retail bucket shop could destroy BoE governor and shows extent of regulatory nepotism

Egg on the face of high ranking government officials, court judges and central bank officials is never easy to remove, and in the United Kingdom where the stiff upper lip and regimented class system pervade every aspect of public service, this is perhaps more notable than anywhere else.

This morning, the embarrassing demise of London Capital and Finance, which made off with client funds is a tale of woe, and has gone largely untouched by the FCA, has created a massive storm at top government level, in the form of a massive row that has erupted between the Bank of England Governor and a former judge.

Mr Bailey, who took the helm at the Bank of England last March, denied in front of a panel of MPs on Monday this week that he had tried to have his name removed from a report accusing him of failings at the Financial Conduct Authority (FCA).

Dame Elizabeth added that it was misleading for Mr Bailey to say he had been ready to own up to his mistakes, and British government member of Parliament Kevin Hollinrake, a prominent voice on fair business banking, called the row ‘extraordinary’.

However, the report’s author, former Court of Appeal judge Dame Elizabeth Gloster, hit back yesterday – claiming that Bailey was wrong to tell the MPs on the Treasury Committee that there had been a ‘fundamental misunderstanding’.

Upper class twit Simon Hume-Kendall established the London Capital and Finance in 2012, and is the former chairman of one of Britain’s major political parties which happens to be the same party as Mr Hollinrake, in his local area of Tunbridge Wells.

In January 2019, London Capital & Finance went bust, and it transpired that 13 of the company’s executives including Mr Hume-Kendal had misappropriated client money. The company’s downfall lost its customers a collective £178 million.

London Capital & Finance grew rapidly between 2016 and 2018 after it hired Surge Group, a Brighton-based marketing company set up by former police officer Paul Careless, to attract new investors, selling 16,706 bonds. Careless is an appropriate.

The investment company went to the wall in early 2019 after the Financial Conduct Authority froze its bank accounts and said its marketing of unregulated mini-bonds promising returns of up to 8 per cent was misleading, and after its owners made off with client funds, and at that time administrators at Smith & Williamson said that bondholders would get back just a quarter of the money they invested.

The scandal sparked an investigation by the Serious Fraud Office, which is ongoing. It has since also led to a ban on the marketing of mini bonds to retail investors, prompted a government-backed review into potential failings by the FCA, and sparked a regulatory investigation into three accounting firms that signed off LCF’s books: EY, PwC and Oliver Clive & Co.

One particular lawsuit brought by the administrators alleges that 10 of the 13 individual defendants at London Capital & Finance “misappropriated” bondholders’ money. They include Mr Hume-Kendall and his wife, Helen, who received at least £24m of investors’ cash, according to the claim. A person close to the case said about £250,000 was spent by the couple on memberships for vulgar London private members club Annabel’s.

However, despite these eye watering sums of lost customer money, on British shores where clients have recourse, nothing has happened. That’s nepotism for you I suppose.

The row this week resulted in Member of Parliament Mr Hollindrake saying “This has absolutely damaged Andrew Bailey’s credibility, 100 per cent. He is part of the phenomenally important financial sector and of course he must take responsibility for his errors.”

Dame Elizabeth Gloster’s report, published last December, addressed the FCA’s failures relating to the collapse of London Capital & Finance at a time when Bailey was chief executive of the City regulator. The report accused Mr Bailey of overseeing an ineffective culture and failing to make changes quickly enough to protect savers in the LCF scandal.

It added that Bailey had tried to persuade Dame Elizabeth Gloster not to name him as personally responsible, a request the former judge found ‘disappointing’ and refused to grant.

Mr Bailey told the Treasury Select Committee this week there had been a ‘fundamental misunderstanding’ and that he fully accepted responsibility for the failings. He said he was ‘angry’ with any suggestion he wanted to redact his name entirely. Once the ambiguity between culpability and responsibility was removed from the draft report, Bailey said, he was happy to be named.

Subsequently, Mr Gloster said in a letter to the Treasury Committee’s chair Mel Stride on Monday that Mr Bailey had made errors when speaking to the committee. She wrote: ‘To the extent that Mr Bailey’s evidence was that his representations to me were limited to requesting a distinction between personal culpability and responsibility (which was my understanding of his evidence today), I must disagree.’

She quoted from submissions which Bailey’s lawyers had sent her. One said: ‘No benefit arises (and the draft report’s findings and conclusions are not strengthened) by the attribution of responsibility to particular individuals – whether Mr Bailey or the executive directors of supervision.

‘This is a freestanding reason for the removal of the references to Mr Bailey’s responsibility.’

Andrea Hall, who leads the LCF bondholders’ action group, said victims were ‘beyond upset, beyond annoyed’ with Mr Bailey.

She said: ‘£6.7million of public money was spent on the investigation. We would expect a world-class chief executive to have the ability to express himself clearly, relevantly and factually, without being defensive or aggressive, while still being appropriately assertive.

‘LCF bondholders are now horrified at this latest development” she concluded. The Bank of England said: ‘As the Governor made clear in Parliament, his legal representations were made in the context of a draft report which was not clear on the distinction between personal culpability or blame, and responsibility.

If that had been made clear in the draft report, the Governor would not have needed to make the representations. At no point, was his intention to imply he did not take full responsibility.

‘He fully accepts responsibility for everything that occurred during his time at the FCA and welcomed the opportunity yesterday to reiterate that, and his apology to bondholders.’

John Glen MP, Economic Secretary to the Treasury, said in September last year: ‘I have asked the FCA to work with the Treasury so that the Government can lay before Parliament Dame Elizabeth’s report and the FCA’s response before the December recess.’

The FCA said: ‘The report will be submitted to HM Treasury, along with our response on lessons learned and recommendations, as soon as possible.’

The FCA and the Serious Fraud Office are both still conducting probes into the events at LCF.

Talk about handwringing and dodging the issue. We all know that the UK authorities can send the police in and close an office down at a moment’s notice if even a tiny amount of fraud is suspected. Remember the CWM FX incident at Heron Tower, anyone? It is time the FCA and the British government were reminded of the powers they can administer, and that we should all consider that a criminal in a donkey jacket is treated differently to a criminal in a private school old boys society tie.

During 2019, following a request from the FCA Board, the Economic Secretary to the Treasury directed the FCA to carry out an independent investigation into the circumstances surrounding the collapse of LC&F.

This investigation is ongoing and, as a result, the Remuneration Committee has decided that performance bonuses awarded to voting members of the Executive Committee in respect of the year under review should be deferred until the report of the investigation has been issued. The Committee will then decide whether it is appropriate for the bonuses to be paid at all, in whole or in part.

So, given all of this wasted public money, and the current situation that has allowed a well connected pompous imbecile to make off with client money, and have senior judges fight with politicians and the Bank of England, nothing has happened and those who were ripped off have still lost their money.

In the United Kingdom, it depends who you are and which school you attended as to whether you will be culpable for your actions. Disgusting really.