The Financial Conduct Authority defended its hiring process and the appointment of Megan Butler as director for transformation last year, a decision questioned by the Treasury Committee in light of the collapse of mini-bond firm London Capital & Finance.
“I wanted to get things moving quickly and in order to do that, we chose to recruit an executive director for transformation from within the current executive team,” wrote Nikhil Rathi, chief executive of the watchdog, in a 25 August letter to the Treasury Committee. The letter was made public by the committee, a group of MPs tasked with holding the City to account, on 13 September.
“This ensured stability and continuity during a period of considerable challenge (with successive lockdowns, end of the Brexit transition period and wider leadership change at the FCA) and allowed us to proceed with the wider restructuring of the FCA and launch campaigns for a range of other roles in parallel.”
LCF went into administration in January 2019 after the FCA asked it to withdraw its “misleading, not fair and unclear” promotion for its retail investment products. Mini-bonds are not normally regulated by the FCA. Some 11,600 retail investors lost out after the firm collapsed, totalling more than £237m. Since then, the promotion of mini-bonds has been banned by the FCA.
At the time of its collapse, Butler was the head of supervision at the regulator. A report into the LCF fallout by former judge Dame Elizabeth Gloster had singled out Butler as a key figure in the watchdog’s oversight before it collapsed.
In the committee’s report looking into the FCA’s regulation of LCF, published on 24 June, the MPs said: “We believe that the FCA was wrong not to have engaged in a fuller recruitment programme for the executive director for transformation role, including the consideration of potential recruits from outside the FCA.”
“It appears that there was a missed opportunity to consider fresh leadership for the transformation programme,” the report added.
Butler, alongside other senior FCA executives who have appeared before the committee, apologised to affected bondholders. At the session during which she gave evidence, she said: “I do take full responsibility for the model of supervision, I take responsibility for the actions that happened within my areas relating to it”.
“I am so sorry that the [supervisory] changes we were putting in place didn’t come quickly enough to change the outcomes for LCF holders but the organisation we have now is not that organisation we had in 2015, 2016 or even 2018,” she added.
The committee’s report also called for the inclusion of fraudulent advertisements within the scope of the Online Safety Bill.
“It is not yet clear whether the Government will include fraudulent advertisements within the scope of the Online Safety Bill,” said Mel Stride, Conservative MP and chair of the committee, in a 13 September statement. “To prevent fraud in the future, this is an issue which must be addressed.”
The Treasury, whose response to the report was also published on 13 September, said the inclusion of fraud in the scope of the Online Safety Bill would have a “real impact on protecting people from the devastating impact of scams posted on social media and dating sites”.
“Furthermore, the Government is considering tougher regulation of online advertising, including regulations designed to tackle fraud online,” the Treasury’s 19 August letter said.
The draft Online Safety Bill, published in May 2021, will be scrutinised by a joint committee of MPs before a final version is introduced to Parliament later this year.
“We continue to believe the best way to protect consumers from illegal online scams is for financial harm to be included as an online harm in the government’s proposed Online Safety Bill,” Rathi wrote in his 25 August letter.
“We believe these provisions should include online advertising (responsible for the majority of fraudulent activity) as well as user generated content.”
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