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Nicky Morgan gives FCA advice after mini-bond collapse

Nicky Morgan gives FCA advice after mini-bond collapse

MP and chair of the Treasury select committee Nicky Morgan has written to the Financial Conduct Authority (FCA) asking it to consider bringing mini-bonds under its regulation following the high-profile collapse of London Capital and Finance (LC&F).

Issuing mini-bonds is not a regulated activity, and LC&F did not need to be regulated to do this. But it did need to be regulated to promote its mini-bonds.

LC&F collapsed earlier this year providing uncertainty for the £236 million invested by its mini-bond holders.

In her letter to the FCA, Morgan raised the regulator’s concern over LC&F’s ‘undue prominence given to its FCA authorisation despite the bonds not being regulated or having FSCS (Financial Services Compensation Scheme) protection’.

It also brought up comments made by FCA chief executive Andrew Bailey, who said he is concerned some firms are misleading consumers over their authorisations, which only cover part of their activities.

Morgan has now asked the FCA to consider opening a statutory investigation into the collapse of LC&F.

The MP said the FCA should consider the role it played over LC&F’s collapse, including whether it should now bring mini-bonds under its regulation.

She asked the regulator to consider ‘whether firms are using their authorisation in a way that may be misleading to consumers’ and if more should be done to ‘clarify the extent to which an FCA authorisation may protect them from harm’.

Morgan has also written to John Glen, the economic secretary to the Treasury, asking him to require the FCA undertake a statutory investigation into LC&F if the regulator has not already started one. She asked the Treasury to consider if the regulatory system should be changed to include mini-bonds.

Morgan said: ‘The FCA is currently investigating LC&F’s marketing material and the SFO (Serious Fraud Office) is investigating individuals associated with the company.

‘Yet there is a broader need to understand what can be learned in a regulatory sense from the events at LC&F. I have therefore requested that the FCA board consider whether the failure of LC&F, the potential harm to those consumers involved, and the regulatory system that led us here, warrants a statutory investigation.’

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