One rule for us, and another for them. The regulators should not get away with discrimination

The FCA’s bizarre and selective methods of dealing with electronic trading fraudsters means that they treat a low class FX con man in a donkey jacket differently to an upper class twit with an old school tie and ties to political parties. Can’t withdraw? Stiff upper lip, old bean

banks

Over the last decade, it has been a moot point and a subject of extreme annoyance that regulatory authorities in well established financial markets centers such as London, Sydney and parts of the more developed APAC region such as Hong Kong and Singapore have been extremely draconian with regard to curtailing the perfectly normal activities of FX and electronic trading firms whose long established product range has a loyal domestic following such as CFDs in the UK and Australia, yet turns a blind eye to blatant fraud committed by wealth managers and hedge funds under the same auspices.

In the UK alone, both Woodford and London Capital & Finance are two companies that have been allowed by the Financial Conduct Authority to run amok and bilk domestic market customers for massive, eye watering amounts of money with absolutely no recourse.

In terms of background, asset manager Neil Woodford ran what is effectively nothing more than a bucket shop. In this case, the Woodford fund which blocked withdrawals and then collapsed whilst trapping client money is nothing more than an image-reliant dinosaur which got away with literally ripping off 300,000 retail investors. Imagine if that was an FX firm with even a tenth of the customers and value of money concerned? It would be major headlines and its owners would be hunted down and severely punished. Not Neil Woodford though, because he is one of the protected elite which stop just short of funny handshakes.

The double standards that have been apparent throughout this matter during the general public’s suffering at the hands of what is effectively a bucket shop from which 300,000 people have not been able to withdraw their funds, in that regulators and the mainstream media have treated Woodford Asset Management with kid gloves, whereas if an electronic trading company even did so much as to be perceived to mistreat one customer account, there would be a furore the size of – well, the size of the hole left by Woodford.

Unfortunately, Woodford dragged Britain’s largest retail electronic financial services firm Hargreaves Lansdown into its mess, causing founder Peter Hargreaves to be understandably absolutely furious.

“The problem was Hargreaves Lansdown had too much with him” said Mr Hargreaves, referring to Neil Woodford.

“The clients have been stuffed in this horrible Woodford fund. I’ve drawn this big dividend. Nothing to do with me and I’ve been very successful. What do they want me to do? Give the dividend back to the unit holders?” said Mr Hargreaves in defence of the £64 million dividend he received from the company that he is entitled to as he is a 32% shareholder.

“It’s annoyed the hell out of me that it would appear he (referring to Neil Woodford) has not been truthful with Hargreaves Lansdown. But it’s also annoyed me that they let it go on so long” said Mr Hargreaves publicly.

It is refreshing to hear such a direct opinion from the founder of what is now a huge publicly listed company with a loyal client base.

This demonstrates, however, that even the most astute companies in the business can fall foul of perceived quality, as withdrawal issues are usually subconsciously associated with low-end bucket shops on islands or in the Middle East, not long-established plate-glass hedge fund managers who hold themselves out as financial gurus and court the media.

The debacle that surrounded London Capital & Finance which made off with client funds is a similar tale of woe, and has gone similarly untouched by the FCA.

Upper class twit Simon Hume-Kendall established the firm in 2012, former chairman of one of Britain’s major political parties 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.

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.

Today, however, the FCA and its old school tie network mentality with regard to this matter is being challenged, and the regulator is under fire for its tardiness in dealing with this fraud having been handed a copy of former Court of Appeal judge Dame Elizabeth Gloster’s report yesterday.

11,600 victims who have lost around £237million are still waiting to see Dame Elizabeth Gloster’s findings, as the FCA will now read the report, write its own report on the findings, and finally send both documents to the Treasury for publication.

Dame Elizabeth was initially due to report in July but had to push the deadline back after the FCA revealed heaps more evidence.

Andrea Hall, an LCF victim who has formed a campaign group, said: ‘We have got victims who are near the edge. There are people who have been evicted from their homes because they lost all their pension savings. Some have lost hundreds of thousands of pounds. So many victims invested because they believed LCF was regulated by the FCA. We think the FCA needs to compensate us.’

Although LCF was regulated by the watchdog, the minibonds were not. The FCA was also warned by financial advisers as early as 2015 that the returns LCF was promising looked too good to be true, and yet the regulator still took no action.

John Glen MP, Economic Secretary to the Treasury, said yesterday: ‘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.

Read this next

Digital Assets

Alameda sues Voyager Digital to recover $445 million

FTX’s failed trading arm, Alameda Research, asked a court to claw back $445 million from Voyager Digital, which it said SBF’s empire paid to the crypto lender before collapsing into bankruptcy.

Metaverse Gaming NFT

Toyota taps Astar Network to explore Web3 in grand style

Although the crypto ecosystem has faced its fair share of bumps, Japanese automaker Toyota is seemingly bullish about the space and continue to look at Web3 as a promising opportunity.

Digital Assets

Bitcoin dominates inflows into crypto funds, AuM hits $28B

As the price of bitcoin continues to consolidate around recent highs, investors expand their positions in funds designed to profit from further appreciation in the cryptocurrency.

Institutional FX

Fiserv secures major payment institution licence in Singapore

Brookfield-based financial services technology provider Fiserv Inc has obtained nod for a Major Payment Institution license in Singapore.

Institutional FX

Finalto expands NDFs line-up with Taiwanese dollar

Finalto announced today that it has expanded its non-deliverable forwards (NDFs) offering with the addition of Taiwan’s dollar to its trading platform.

Opinion

It’s time for FX to Harness Crypto’s Potential

Jonathan Cumberlidge, FX Sales Director for BVNK, makes the case for cryptocurrencies in improving the efficiency and flexibility of foreign exchange trading.

Digital Assets

Owner of OptionMint, OptionKing, and OptionQueen gets 30 months in prison

A US federal judge has sentenced Ohio resident Jared Davis, who was found guilty for his participation in a multi-million fraud scheme carried out by Israeli-run binary options websites.

Executive Moves

iS Prime co-founders Raj Sitlani and Jonathan Brewer leave, but “business as usual”

“For our clients and teams at iS Prime, iS Risk and iS Prime Hong Kong, it is business as usual. We will be increasing our investment in our technology and staff, putting our clients first as we drive the business forwards to maintain our market leadership position.”

Digital Assets

Germany-focused DekaBank taps METACO for digital asset custody offering

“Digital assets are a critical part of the future, a radical new way for how assets will be represented, from currencies to real estate.”

<