Dame Gloster & TTF bear witness to watchdog failures
by Alex Varley-Winter, TTF’s Head of Media Relations & Investigative Reporting
Former Court of Appeal judge Dame Elizabeth Gloster yesterday told MPs that “there has to be a cultural change” at the UK’s City regulator the Financial Conduct Authority. As a witness on the same panel, TTF’s founder Andy Agathangelou said that he is seeing a worsening trajectory of financial crime and regulatory failure in the UK.
You can the watch evidence from TTF, the Dame and other witnesses here, as MPs consider altering compensation law to address London Capital and Finance and potentially, other scams too.
By TTF’s analysis, comparable scandals to London Capital & Finance have already happened and are happening now. Agathangelou told MPs “there is a mountain of evidence suggesting that there are many similar cases”. As an example, he pointed to the FCA’s failure to regulate Blackmore Bond – which included their inaction on 45 police reports – and listed a raft of other scandals of which TTF has knowledge.
Dame Gloster reflected to MPs on the London Capital and Finance scandal itself; what it showed about the UK’s financial regulator, and why its culture desperately needs to change.
No audit of FCA transformation
During the hearing, Dame Gloster told shadow Economic secretary Pat McFadden that she is not commissioned to audit the FCA’s actions following her report on London Capital and Finance. The watchdog accepted her findings. However she is not in a position to assess whether the FCA has begun acting on her recommendations yet, or how effectively.
Dame Gloster expressed some light relief not to have to audit how the FCA follows-up her report, but it begs the question of how cultural change at the FCA can be measured in any case. The watchdog hired a Head of Transformation internally.
A unique factor in the LCF scandal was how an investment in mini-bonds was sold as an ISA or ‘individual savings account’ – a product that retail investors might consider to be safe. When LCF collapsed, they nevertheless lost their investments which, it appears, should not have been marketed as ISAs.
Checks and balances
“Neither the FCA nor HMRC did any checks on whether the product that was being flogged to investors was ISA compliant”, as Dame Gloster explained to MPs yesterday: “The fact that LCF bonds could be acquired in an ISA wrapper was absolutely critical to attracting investment”.
TTF advisor Mark Bishop lost money in the Connaught scandal almost a decade ago. Lawyer Raj Parker has since found regulatory failures in the Connaught case that preceded LCF.
Bishop reflected to MPs that the ISA element of the LCF scandal appeared exceptional, and that LCF as an FCA-‘authorised’ firm had “conducted literally no regulated business” – this combination may be unique. Nevertheless, other recent scandals might be compared to LCF for regulatory failure. Bishop told MPs that he would like to see the FCA opened up to legal challenge in such cases.
SFO chief calls for new tools to prevent UK companies 'promoting and profiting' from crime
Would criminalising companies who fail to prevent economic crime make U.K. based investors safer from scams? SFO chief Lisa Osofsky last week told the Government’s Law Commission that ‘we need to level up’ and narrow a disparity ‘between the tools we have to tackle bribery and the tools we have to tackle other crimes like fraud’.
It has been repeatedly observed that corporations in the UK are hard to investigate: “Despite promoting and profiting from a culture that too often facilitates criminal conduct, large multinationals are still being shielded from liability for crimes like fraud”, Osofsky said. She pointed particularly to crimes ‘undertaken by middle managers or those lower down the food chain’. Such offences may be several steps removed from top management, but they could still result from employees trying to meet targets.
Across the Atlantic
A regime of fines for corporate violations exists in the United States, for which you can find comprehensive data here. In the U.S., a company profiting from economic crime can be prosecuted, even if the misconduct is committed by low or mid-level employees. A criminal act that benefits the company is one it can potentially be punished for.
The UK’s legal landscape is different: in most cases of economic crime we can punish individuals, but we cannot punish companies. Some experts would like to introduce a U.S. type regime of ‘corporate liability’ for the UK, but they believe MPs will not vote for it:
“It won’t happen politically [and] it’s not practical politics to think that it will,” commented Lord Edward Garnier QC last week. He argued that the UK should instead introduce a law that companies must act to ‘prevent’ economic crime, and may be prosecuted if they fail to put preventative measures in place. Options for reforming corporate liability, including ‘failure to prevent’ will be presented by the Law Commission to Johnson’s Government at the end of this year.
The Bribery Act
In 2010, David Cameron and Nick Clegg’s coalition government introduced a ‘failure to prevent’ offence for Bribery, and the SFO claims that this proved useful to them. That they have secured Deferred Prosecution Agreements that include Bribery Act offences is a “marker of its impact”, according to Osofsky. You can read more about how the SFO has made use of the Bribery Act in this FOI response.
Susannah Cogman, a legal expert on financial crime, fears that a ‘failure to prevent’ offence for wider economic crimes would be counter-productive. In her experience ‘personal risk’ of Board members being prosecuted if they step wrong, is what really changes corporate culture. Company-wide compliance regimes do not – necessarily – change behaviour in the same way. The risk of a boss being personally pursued if their company profits by crime, is more effective she argues.
To that end, Cogman promotes “better protection for whistleblowers, a better incentive for corporate self reporting [e.g.] some sort of immunity regime, … and fundamentally better resourcing for law enforcement.” She argued that a ‘failure to prevent’ offence, if introduced, would fail to deter offending that boosts profits, because “I don’t think that companies refrain from criminal activity only, or even mainly because of the risk of corporate prosecution.”
Corporate liability: a whistleblower’s perspective
TTF members would like to see robust action against economic crime. But what effect will legal reforms have on the ground? Companies have, in the past, tacitly encouraged crime by staff to meet targets, despite running an adequate compliance regime on paper. One whistleblower set out their experience to TTF Blog: “As long as they have the tick box policies in place, they [the company] are protected from prosecution. It is a farce.”
In this case their financial services employer had an appearance of complying with the law. Nevertheless ‘the staff members I worked with were coerced and degraded into complying’ with behaviour that broke the rules– allegedly breaking the law to boost profits. In such circumstances “we need the board held accountable, with criminal convictions.”
Press Timeline of relevant articles:
06 Feb 2021 – Fraud victims suffer enough – guarantee will help innocent overcome shame of scamming by Daniel Jones for the Sun
05 Feb 2021 – Leader: The FCA’s leaders need to step up when things go wrong by Justin Cash for MoneyMarketing
04 Feb 2021 – Pension scam victims say regulators should have saved them from from losing life savings, by Jessica Beard for the Telegraph
02 Feb 2021 – SMCR rules come back to bite FCA in mini-bond probe ‘rules around senior managers being held responsible for their actions have come back to bite the regulator’, by Daniela Esnerova for MoneyMarketing
02 Feb 2021 – Regulation must deliver transparency and protection for Buy Now Pay Later consumers by Alex Marsh for City A.M.
02 Feb 2021 – Bank chief Bailey ‘should be censured’ for failings by James Hurley for the Times
02 Feb 2021 – FCA criticised for trying to omit names from LCF report by Rachel Mortimer for FT Adviser
02 Feb 2021 – Poll: Should FCA executives bear personal responsibility for the London Capital and Finance fallout? by MoneyMarketing
01 Feb 2021 – Investment funds flouting new transparency rules by Patrick Hosking for the Times
01 Feb 2021 – MPs launch full inquiry into London Capital & Finance scandal with chairman declaring it will be “thorough and clear” by Jim Armitage for the Evening Standard
29 Jan 2021 – The Financial Services Bill doesn’t provide the tough regulation we need by Professor Prem Sikka for Left Foot Forward
25 Jan 2021 – FCA urges clients of collapsed British Steel firm to consider claims by Sonia Rach for MoneyMarketing
21 Jan 2021 – MPs call on FCA to ‘hold bad advisers to account’ by Laura Purkess for CityWire
21 Jan 2021 – FCA told it lacks vision to tackle consumer issues by Amy Austin for FT Adviser
18 Jan 2021 – Former Hong Kong lawmaker rejects HSBC’s explanation over frozen accounts by Reuters
18 Jan 2021 – What we learned from a bumper FCA data dump by Justin Cash for MoneyMarketing
18 Jan 2021 – Wall Street fears bubble from Biden stimulus as retail investing booms by Katherine Greifeld, Claire Ballentine and Vildana Hajric for Independent.ie
15 Jan 2021 – Mortgage prisoners accuse Treasury of working against them as wider FCA remit blocked by Owain Thomas for Mortgage Solutions
14 Jan 2021 – MP Vows To Keep Pushing Tougher Economic Crime Law by Richard Crump for Law360
12 Jan 2021 – Bitcoin: be prepared to lose all your money, FCA warns consumers by Kalyeena Makortoff for the Guardian
07 Jan 2021 – Regulators and police say Covid lockdowns have driven up online pension scams and demand regulation of Google, Facebook and others by Jim Armitage for the Evening Standard
06 Jan 2021 – Why UK savers could fall through the cracks in Brexit regulation from the FCA by Jim Armitage for the Evening Standard
04 Jan 2021 – Bank of England fails to publish officials’ expenses by Alex Ralph for the Times
18 Dec 2020 – Executives at Financial Conduct Authority to lose bonuses over London Capital & Finance scandal by Ben Martin for the Times – Bosses at the Financial Conduct Authority will lose £205,000 in bonuses after the highly critical report on the regulator’s handling of the London Capital & Finance scandal
17 Dec 2020 – The fallout from the financial regulator’s shocking failure on LC&F is not over yet by Nils Pratley for the Guardian
17 Dec 2020 – FCA did not ‘effectively supervise’ collapsed mini-bond issuer LCF, says report by Matthew Vincent for the Financial Times “Members of the Transparency Task Force, a lobby group pushing for regulatory reform, pointed out that in his own representations to the Gloster review, Mr Bailey included a demand “to delete references to ‘responsibility’ resting with specific identified/identifiable individuals”.
17 Dec 2020 – Former Financial Conduct Authority boss Bailey apologises over handling of mini-bond scandal by Ben Martin for the Times
16 Dec 2020 – EU cannot be ‘captured’ by City of London, warns financial services chief by Sam Fleming and Jim Brunsden for the Financial Times
09 Nov 2020 – Spike in personal pension cases at ombudsman by Rachel Mortimer for FT Adviser
09 Nov 2020 – Regulator: Climate risk ‘looms even larger’ than pandemic by Avery Ellfeldt for ClimateWire (U.S.)
08 Nov 2020 – How financial services watchdog has reacted to UK consumer worries in Covid by Hilary Osborne for Guardian
08 Nov 2020 – Five predictions for banking regulation in a Biden presidency by Jon Hill for Law 360
05 Nov 2020 – Martin Lewis warns of ‘epidemic of scams’ after ICU nurse loses £8,000 by Scott Edwards for Wales Online
05 Nov 2020 –FCA bans adviser trio jailed for sex offences by Rachel Mortimer for FT Adviser
03 Nov 2020 – ‘We haven’t received a penny’: Business interruption insurance row intensifies as owners fear payout delays, by Elizabeth Anderson for iNews
03 Nov 2020 – Aviva’s shares fiasco highlights weakness of the city watchdog by Patrick Hosking for the Times
02 Nov 2020 – Banks have done little to help the country through the pandemic, so why is the government rewarding them? by Simon Youel for the Independent
29 Oct 2020 – Calls to sack Malta financial regulator CEO by Cristian Angeloni for International Adviser
27 Oct 2020 – U.S. group urges Biden to use financial regulation to control climate change by Valerie Volcovici for Reuters
27 Oct 2020 – ‘Impact startups’ continue to raise funding during the pandemic despite difficulties faced by the wider tech startup sector by Sebastian Klovig Skelton for Computer Weekly
26 Oct 2020 – Why there must be thorough probe of claims made by Bank Signature Forgery Campaign – Greg Wright for the Yorkshire Post
26 Oct 2020 – Critics demand action over ‘flawed’ British Banking Resolution Service by James Hurley for the Times
23 Oct 2020 – Bank Signature Forgery (film) by Nicholas Wilson for Corruption UK
22 Oct 2020 – UK fraud agency suffers string of senior departures by Kate Beioley for the FT
22 Oct 2020 – Work harder to find fraud, watchdog tells auditors by James Hurley for the Times
17 Oct 2020 – MPs pursue claims bank signatures were faked on court papers by Rupert Jones for the Guardian
16 Oct 2020 – We need universal digital ad transparency now by Laura Edelson, Erika Franklin Fowler and Jason Chuang for TechCrunch
15 Oct 2020 – Rising COVID-19 Rates Send NatWest Misselling Trial To Video by Bonnie Eslinger for Law 360
15 Oct 2020 – MPs Push Agencies to Act on Forged Signature Claims by Law360
13 Oct 2020 – Mark Carney says banks should link executive pay to Paris climate goals by Kalyeena Makortoff for the Guardian
12 Oct 2020 ‘It is time to reboot the competition regime for the modern, digital age’ by David Wighton, The Times
12 Oct 2020 – Gina Miller blasts FCA complaints scheme changes ‘unfair, immoral and illegal’ by Cristian Angeloni for Portfolio Adviser
12 Oct 2020 – MPs call for input on Pension Schemes Bill by James Phillips for Professional Pensions
10 Oct 2020 – Give pension trustees power to fight scammers, say MPs by Kenza Bryan for the Times
08 Oct 2020 – Freedom to transfer pensions should be stripped where scams are suspected, industry experts urge by Jessica Beard for the Telegraph
08 Oct 2020 – Planned pensions shake-up passes first Commons hurdle by Law 360
08 Oct 2020 – WPC chairman says transfer rules ‘must be changed’ by Amy Austin for FT Adviser
07 Oct 2020 – Tech giants share blame for pension scams, MPs told by Law 360
06 Oct 2020 – FCA opens 85 cases over pension scam concerns by Amy Austin for FT Adviser
11 Sep 2020 – The Hut Group facing fresh questions over governance after it reveals one of country’s best-known private equity barons to oversee pay policy by Lucy White for the Daily Mail
10 Sep 2020 London Capital and Finance investors relieved after court ruling opens route to compensation claims by Ben Chapman for the Independent
05 Sep 2020 Crime Agency under fire over bank signature forgery by Andy Verity for BBC
24 Aug 2020 – Financial Conduct Authority rushes to minimise compensation for its failings by James Hurley for The Times
04 Aug 2020 – Have your say: Will the WPC’s inquiry into the impact of pension freedoms be too overshadowed by Covid-19 impacts? by Professional Pensions
03 Aug 2020 – ‘“I’m 39, have lost my job and am in debt – can I unlock my £18k pension?” … DON’T do it!’‘ by Steve Webb for This is Money
01 Aug 2020 – ‘I lost £2.3m after I was conned into transferring my pension’ by Jessica Beard for the Telegraph
28 Jul 2020 – MPs launch inquiry into pension scams by Tom Kelly for Daily Mail ; UK Pension Scams Under Scrutiny After 2015 Relaxation in Rules by Reuters & MPs launch wide-ranging pension scams probe by Justin Cash for MoneyMarketing
24 Jul 2020 – US business groups seek steps to stamp out online fraud by Leonie Barrie for Just Style
21 Jul 2020 Londongrad Calling: Is Europe’s Laundromat the ‘New Normal’? by Mark Conrad
17 Jul 2020 – Year ‘dominated’ by FCA shortcomings as 205 complaints made, by Rachel Mortimer for FT Adviser
29 Jun 2020 – MPs Pushed to Launch Pension Scam Inquiry by Amy Austin for FT Adviser & Lawmakers Urged To Open Inquiry Into Pension Scams by Martin Croucher for Law 360
11 Jun 2020 – Blackmore minibond investors get just £5m back by Ben Martin for the Times
11 May 2020 – FCA urged to build public trust in independent reviews by Rachel Mortimer for FT Adviser
30 Apr 2020 – FCA was warned three years ago about mini-bond firm Blackmore Bond, which collapsed with £45m of savers’ money by Ben Chapman for the Independent
15 Apr 2020 – Met police lose two thirds of finance officers as fraud soars by Ben Ellery for the Times
25 Mar 2020 – Care Home Wants NatWest Docs in Misselling Fight by Law360
20 Mar 2020 – Connaught review delayed as Covid-19 concerns loom by Rachel Mortimer in FT Adviser
07 Jan 2020 – It’s time to keep your pensions promise, Boris! The PM pledged to help these victims of a huge scam FOUR years ago – and they’re still waiting by Tom Kelly for the Daily Mail.
29 Dec 2019 – ‘Lambs to the slaughter – tens of thousands of savers have lost up to £10billion in rogue pensions schemes sanctioned by the government… and now the taxman is threatening VICTIMS with fines’, and ‘Making millions from other people’s misery’: A Government adviser, call centre chief and pension scheme director are among those who stand accused of involvement in pension schemes that exploited loophole in the law by Tom Kelly for the Daily Mail
03 Sep 2019 –
Chris Gordon Developer who ‘lost £1m’ takes legal action against Ulster Bank by Alan Erwin for the Belfast Telegraph
30 Aug 2019 – MPs back businessman on hunger strike at Clydesdale Bank by Kalyeena Makortoff for the Guardian
15 Aug 2019 – Victims hit by Connaught’s collapse blast City watchdog for ‘whitewashing’ independent review by Lucy White for Daily Mail
05 Aug 2019 – Plunder in paradise: The ‘adviser’ behind a Costa scam that has cost expat pensioners £25MILLION – and led one to attempt suicide by Laura Shannon for Mail on Sunday
05 Jul 2019 Government-owned bank ‘forging signatures’ in repossession cases by Andy Verity for BBC
18 Jun 2019 – “I came home to find my house had been stolen!” by Angela Ellis-Jones for the Daily Mail
20 Jun 2019 – FCA orders review of its handling of Connaught collapse by Rachel Mortimer for FT Adviser
13 Jun 2019 – Investigation into disgraced RBS small business unit branded a ‘whitewash’ by MPs by Ben Chapman for the Independent
07 Jun 2019 – Guernsey Stock Exchange disputes FCA account over Woodford by David Thorpe in FT Adviser
29 Mar 2019 – MPs call for inquiry into alleged forgery of signatures by Andy Verity for BBC
15 Feb 2017 – RBS accused of fraud & forgery by customers and ex-employee by Andrew Hosken for The World Tonight BBC Radio 4
22 Dec 2016 – Solicitors suspended for roles in collapsed Brazilian investment scheme by Nick Hilborne for Legal Futures
10 Oct 2016 – The Dash For Cash: Leaked Files Reveal RBS Systematically Crushed British Businesses For Profit by Heidi Blake, Jane Bradley, Tom Warren & Richard Holmes for Buzzfeed News