Deadline to complete London Capital & Finance investigation sparks concerns

Maria Nikolova

“Investors will want answers urgently, and may be surprised by the 12 month deadline for the investigation to conclude”, says Chair of the Treasury Committee.

Although this week brought some positive development in terms of actions the UK authorities are taking to investigate the circumstances around the demise of London Capital & Finance, the pace of the independent investigation has sparked questions.

Earlier this week, Rt Hon. Nicky Morgan MP, Chair of the Treasury Committee commented on the appointment of Dame Elizabeth Gloster to lead a statutory investigation into the possible regulatory failure surrounding London Capital and Finance (LC&F).

LC&F went into administration in January 2019 after taking £236 million of investors’ money. This followed concerns raised by the Financial Conduct Authority (FCA) in December 2018.

Nicky Morgan said the move for the investigation was welcome but voiced concerns about the speed at which the probe will progress.

“Investors will want answers urgently, and may be surprised by the 12 month deadline for the investigation to conclude”.

“This cannot be kicked into the long grass. The FCA, HM Treasury and Dame Elizabeth must think innovatively about how the investigation can report quickly.

“Additionally, HM Treasury will look at the wider questions raised by the failure of LC&F, including the regulation of so-called mini-bonds. The Committee will also keep a close eye on this work, which must similarly be conducted in a swift and transparent manner”, she added.

In April this year, the Economic Secretary wrote to the FCA to set out that he would order an investigation into the failure of LCF, using Treasury powers under section 77 of the Financial Services Act 2012. Section 77 gives the government wide ranging powers to direct an investigation.

The move follows a meeting of the FCA board earlier this year where they agreed that a statutory investigation was in the public interest and requested the Treasury direct the FCA to carry out an investigation.

The Treasury will commission research into the wider market for ‘mini bonds’ and other non-transferable securities, and their role in the economy. The Treasury will also consider the regulatory arrangements currently in place for the issuance of these investments, including the Financial Promotions regime which governs the marketing of those products.

The Treasury will work with Her Majesty’s Revenue and Customs to review the tax rules for the Innovative Finance Individual Savings Accounts (IF ISAs) and the relationship of these rules to the financial services regulators.

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