FCA misconduct probes into retail financial services firms jump by almost a third

By Roger Baird on Thursday 11 July 2019

Alternative Lending

The UK regulator said it plans to ‘intervene more swiftly and severely’ on behalf of retail investors.

FCA misconduct probes into retail financial services firms jump by almost a third
Image source: Company supplied

Misconduct cases among retail financial services firms jumped by almost a third over the last year, said UK regulator the Financial Conduct Authority (FCA).

The FCA dealt with 101 cases, a 29 per cent leap on a year ago, with the most high-profile probe coming in the January collapse of London Capital & Finance (LC&F), which left around 11,500 small investors facing as much as £236m of losses.

The downfall of LC&F has so far led to five arrests, after the Southampton-based firm sold high-risk mini-bonds, despite advertising its product as a low-risk individual savings allowance (ISA). An independent probe has also been launched into the FCA, concerning its oversight of the investment firm. 

Overall, the FCA trebled the amount of financial fines it handed out £227.3m in the year to March, up from £69.9m last year, according to its annual report published earlier this week.


Retail focus

Matt Hopkins, head of fintech at professional services firm BDO, said: “The FCA is sharply increasing its targeting of illegal, unregulated products and unauthorised firms that target unsophisticated retail investors.”

He added: “Miss-selling and appropriateness of products for retail customers of regulated firms will also be a major focus of the year ahead. The retail customers’ understanding of innovative products and a sometimes misplaced belief in FSCS [Financial Services Compensation Scheme] protection is the responsibility of the authorised firm to address. The FCA will take a hard line if they think firms are not being clear over what the FSCS will and won’t cover.”

BDO’s Hopkins said the FCA still intends to support innovation among fintech challengers, but this would not come at the expense of strong customer protection.


Sophisticated criminals

Hopkins said: “Challengers will need to focus and invest heavily in operational infrastructure and resilience – particularly those businesses with rapid growth and customer acquisition strategies.”

The regulator’s chief executive Andrew Bailey (pictured) said: “At the FCA we are transforming our response to intervene more swiftly, directly and severely to prevent and stop harm from occurring and ensure those responsible face the consequences. Technology enables criminals to develop increasingly sophisticated ways of targeting consumers.” 

He added: “Firms own resilience, systems and controls must also keep pace. We have required 40 per cent of the sponsor firms in our supervisory reviews to improve their market systems and controls to keep these standards high.”   

The FCA report said that overall, nine per cent of adults "are currently invested in alternative assets, which include peer-to-peer lending, equity and debt crowdfunding, buy-to-let property, crypto-currencies, and collectable assets".


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