LONDON (Reuters) – Bank of England chief Andrew Bailey angrily hit back at criticism that he failed to overhaul a regulator quickly enough to avert the collapse of the London Capital & Finance investment firm, saying the regulator had been a “broken machine.”
Bailey was chief executive of the Financial Conduct Authority when LCF collapsed in January 2019 leaving more than 11,000 investors with losses of up to 237 million pounds ($326 million).
An independent report last year said Bailey and the FCA’s executive committee were responsible for deficiencies that led to LCF’s collapse.
The FCA regulates nearly 60,000 financial firms and was formed in 2013 after its predecessor, the Financial Services Authority, failed to supervise major banks effectively in the run-up to the 2008 financial crisis.
Last week the author of the report, former judge Elizabeth Gloster, told parliament’s Treasury Committee that being unable to complete internal reforms was no excuse for the LCF debacle.
Bailey, who last year apologised to LCF investors for not reforming the FCA quickly enough, told the committee on Monday that he “fundamentally disagreed” with Gloster’s view, adding that she had said the FCA at the time was a “broken machine”.
“She sort of suggested to you that if only we had told the staff to pull their socks up, the problem would have gone away,” Bailey told lawmakers.
“She even at one point in the report suggested that maybe it was a mistake to do the programmes of change, which I just fundamentally disagree with,” Bailey said.
There had been no mechanism for extracting concerns raised by investors about LCF from among 200,000 calls a year received from the public, Bailey said.
He also took issue with a claim by Gloster that he and two other FCA executive committee members at the time had asked her not to name them in relation to the report’s conclusions.
“I am probably sounding quite angry now, and I am,” he said.
LCF was regulated by the FCA but the mini-bonds it sold were not, and the watchdog has banned their sale to retail investors.
Bailey said LCF was identified as a problem in autumn 2018, towards the end of implementing internal reforms at the FCA.
“I really do think it’s a changed organisation,” Bailey said, adding that it would continue to need transforming to tackle new issues ranging from crypto-currencies to pre-paid funeral plans.
However, Bailey said the FCA faced a major challenge in how to prioritise limited resources, and British authorities more generally lacked enough capacity to prosecute cases of fraud.
($1 = 0.7280 pounds)
(Writing by Huw Jones; Editing by Toby Chopra; Editing by William Schomberg and Toby Chopra)
