Yahoo Finance 'I take responsibility' for failure to stop £236m 'suspected fraud', says Bank of England chief
The governor of the Bank of England has said he takes full responsibility of failings on his watch that allowed one of the biggest investment scandals in recent British history.
Andrew Bailey told MPs on Monday that he ultimately bore responsibility for the Financial Conduct Authority’s (FCA) failure to prevent the growth and then collapse of London Capital Finance (LCF), an investment company that raised £236m ($324m) from over 11,000 small-time investors before folding at the start of 2019.
LCF’s collapse is being investigated by the Serious Fraud Office and Bailey called it a “suspected fraud.” Bailey said LCF repeatedly broke the FCA’s rules around marketing despite warnings.
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Bailey ran the FCA, Britain’s top financial watchdog, from 2016 until March last year when he became governor of the Bank of England.
“I take responsibility for all of the FCA,” he said. “There’s no question about that. I don’t want to in any sense suggest I’m not responsible for everything that happened at the FCA.”
Bailey made the comment during an appearance in front of the Treasury Select Committee to answer questions about the independent inquiry into regulation of LCF. A damning report by Dame Elizabeth Gloster, published in December, said the FCA had failed investors through lax supervision and personally singled out Bailey for blame.
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“There’s a lot of lessons for all of us, I’m sure of that,” Bailey said.
While Bailey accepted he was ultimately responsible, he pushed back on some of Dame Gloster’s specific criticisms, rejecting claims that the FCA’s board were too relaxed and the charge that problems were ignored.
Bailey said he was also “very angry” at the suggestion he had tried to have his name scrubbed from the report.
Dame Gloster told MPs last week there was “quite a lot of pushback” to her decision to name individuals. She was “quite irritated” and “quite surprised” by letters from Bailey, she said. Dame Gloster concluded the pushback was inappropriate.
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“It’s not correct… that I did not want my name mentioned,” Bailey told MPs. “I’m probably sounding quite angry now and I am... I am angry about this... It’s just not right.”
Bailey said he had asked Dame Gloster not to mention his name in relation to being culpable for LCF, but was happy to bear responsibility.
“It was not a generalised point about my name,” he said. “The point I was making was not about responsibility.”
Bailey said he had consulted with his lawyer about a draft of the report detailing Dame Gloster’s accusation. His lawyer advised him there was nothing he could do.
“I can’t tell you that it’s anything other that disturbing to me,” Bailey said. “I’m sorry about this but it’s been a difficult point in this process.”
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While accepting ultimate responsibility, Bailey did not appear to suggest things could have been done differently. He argued that LCF was allowed to happen due to the dysfunctional nature of the FCA he inherited. He blamed “the time it takes to change the place” for the failure to spot “red flags”.
A key issue was the FCA’s call centre. The regulator received 611 calls about LCF, including 15 from one individual who raised detailed allegations. However, Bailey said there was no way of “extracting” that information.
“The red flags... were buried in the 200,000 calls,” he said. “There wasn’t a system for extracting them. I wish there was. We set to work — one of the big deliverables in this programme was to do just that.
“Obviously there should have been a mechanism to alert supervision and enforcement to those.”
The problem was made worse by the high staff turnover and sickness rates. Bailey said the was partly down to increasing levels of “very disturbing” abuse received by call handlers.
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“They put together a tape for us… that tape is highly disturbing,” MPs were told. “It was happening with some frequency. The tape had in it racial abuse, antisemitic abuse, homophobic abuse — and so we had to step in.
“I wish I’d known about it sooner. I would have jumped in and got on it sooner... Our staff should never be put in that place.”
Bailey repeated his apology to LCF bondholder who lost money investing with the company.
“They should not suffer as a consequence of this,” he said.
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