Regulator admits it could have done better with the publication of Connaught Review
The independent review of the Connaught real estate fund – the fund behind former bridging lender Tiuta – has been released, prompting the chairman of the Financial Conduct Authority (FCA) to admit that there were a number of things the regulator “ could have done better ”.
Bridge lender Tiuta went into receivership in September 2012 after a black hole of around £ 20million was discovered in its accounts in early 2011.
In December 2012, Connaught went into liquidation. At this point, the outstanding amount invested was £ 79million. Since then, investors have campaigned to get their money back.
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However, FCA’s predecessor, the Financial Services Authority (FSA), has been accused of ignoring a whistleblower that there was a hole in Tiuta’s accounts. Indeed, it was 19 months before the FSA reported the matter to the City of London Police.
The Connaught Review assessed the FSA and FCA’s approach and response to intelligence, as well as the FCA’s approach and participation in mediation negotiations prior to the launch of enforcement investigations in March 2015.
This led the regulator to apologize for “the mistakes” it made with respect to Connaught. He also said he would implement all of the recommendations of the Connaught Review. The full regulator response can be found here – FCA Response to Connaught Exam.
Charles Randell, FCA President, said: “There are a number of things we could have done better in our oversight of these two companies and both reports highlight the need for FCA to continue to change to better protect consumers against damage.
“We accept all of the recommendations that were made to the FCA and we are deeply sorry for the mistakes we made.
“The collapse of LCF has had a devastating effect on many investors and we will do everything possible to complete our investigations as quickly as possible and support the recovery of additional funds for investors.
“The FCA has always favored the supervision of regulated activities that affect the most vulnerable in our society, who often have very limited financial choices. We also introduced measures designed to prevent harm to consumers who had more freedom of choice.
“These reports don’t just highlight operational errors; they also indicate that the measures we introduced may not have been as effective as we hoped and challenge the balance we achieved at the time.
“Over the past few years, we have already made significant changes in our approach to overseeing businesses. We have learned considerable lessons from what happened with LCF and Connaught and will provide public updates as we implement the recommendations.
“Consumers have to trust the FCA to do its job properly. We need to strengthen a culture in which CFA members are empowered and confident to take responsibility for bold interventions. The organization has made progress in developing this culture over the past few years, and I am proud of what we have accomplished during the current coronavirus crisis. We know we have more to do.
“The FCA Board of Directors and I believe that continuing to transform our organization is the right way to build confidence in the FCA and achieve our ambitions for change. “
Nikhil Rathi, FCA Managing Director, added: “Having joined FCA as Managing Director in October, these reports of historic events are sobering.
“My colleagues and I are committed to implementing the recommendations and lessons learned, which will require significant and necessary changes in the way we regulate, our use of data and information, and our culture.
“We know the FCA needs to make faster and more efficient decisions, prioritize good outcomes for consumers, markets and businesses, and reform our approach to intelligence and information sharing. Our ongoing action plan, particularly on our broader transformation agenda and high-risk consumer investments, aims to achieve this goal.
“FCA will always have to make difficult risk-based choices about resource allocation and balancing regulatory action with consumer choice and responsibility. I hope that the mistakes made by the FCA in these cases will not detract from the work and dedication of my colleagues for several years.
“We have shown that when we act boldly, we deliver to consumers, markets and businesses. With the continued dedication of all to FCA and with the support and oversight of the FCA Board of Directors, I know we can make the changes we need in the months and years to come to meet these reports. and deliver to UK consumers and markets.
Rathi then described the key actions the FCA will take over the next six months:
- restructure the FCA to consolidate its policy, oversight and competition functions under two new executive directors so that we have a better approach to translating information into risks and warnings before taking action to address them;
- become a more data-driven regulator by recruiting a data, information and intelligence manager and implementing a separate change agenda that is transforming the way we deal with and prioritize information and intelligence;
- undertake a ‘use it or lose it’ exercise, with companies that have not used their regulatory clearances to earn regulated revenue in the past 12 months and are at risk of having their permission revoked, to reduce the risk that companies have a license to carry out regulated activity for the sole purpose of adding credibility to their unregulated activities;
- take further steps to tackle pension scams with the DWP once the Pension Bill receives Royal Assent;
- improve training for all front-line supervisory, authorization and enforcement personnel, who will have completed mandatory training on “FCA Powers and Unregulated Activities”, “Financial Accounting” and “Financial Accounting”. business model analysis ”by the end of the first quarter of next year. We will also add to our existing training on supervisory tools to give staff greater confidence in knowing when and how to intervene using relevant information held across FCA;
- recruit additional prudential specialists to act as quality assurance and assess companies with complex business models, including when they combine regulated and unregulated activities, within our licensing division;
- work with the government to combat scams advertised and promoted on Google and other online platforms; and
- disrupt scams and alert consumers to risks by stepping up our own consumer campaigns, including ScamSmart and targeted digital activity.