Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Gareth Thomas Excerpts

2nd reading
Tuesday 8th June 2021 Commons Chamber

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I beg to move, That the Bill be read a Second time.

In the United Kingdom there are a wide range of opportunities for people to invest. The Government’s role is to try to ensure that the system of regulation and financial investment is suitably robust, so that individuals are treated fairly and have confidence in the financial system in which they invest. Unfortunately, no system of regulation can completely eradicate the risk that firms fail, or that there are bad actors intent on committing fraud. This short Bill is aimed at two areas where it is necessary for the Government to step in.

Clause 1 relates to a new Government scheme to compensate London Capital & Finance bond holders who lost money after the firm entered administration in 2019. Clause 2 will arrange a loan to the board of the pension protection fund to pay compensation to occupational pension scheme members who have been victims of pension fraud, following the recent High Court judgment in the case of PPF v. Dalriada. I will now expand briefly on those measures in detail.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

The Minister will understand that part of the reason why we are here today is because of Dame Elizabeth Gloster’s excoriating report into the capacity of the Financial Conduct Authority. Is he certain that the FCA now has the powers and, crucially, the capacity it needs to ensure that consumers of financial services businesses are properly protected?

[Guy Opperman]

Yes, I believe that is the case. The Treasury and the FCA are working together. The FCA is under new management, as the hon. Gentleman will be aware, and there is an acceptance by the FCA of all the findings in Dame Elizabeth Gloster’s report. More particularly there is fresh thinking, one hopes, that will be applied going forward.

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[Gareth Thomas (Harrow West) (Lab/Co-op)]

I rise to support the Bill, but to suggest that there are wider issues to be considered from the scandal behind it. In particular, I suggest that there are disturbing echoes of Dame Elizabeth Gloster’s report in how the demutualisation of Liverpool Victoria is being considered by the same regulators, and that there is an urgent need to tighten up some major legal loopholes.

The focus of the Financial Conduct Authority’s interest to date in LCF and Liverpool Victoria is very different. LCF was selling, or rather mis-selling, a distinct product. With Liverpool Victoria, the issue is whether it should be allowed to hand over all the capital and assets its British customers have helped it build up over almost 200 years to a privately owned American firm with no commensurate experience, and whether the choices of consumers past and present are being respected. I understand that regulators have had a substantial number of meetings with those pushing the demutualisation, but none with the customers and owners of Liverpool Victoria.

Consumers lost thousands with London Capital & Finance. The customers of Liverpool Victoria also risk losing out significantly. Dame Elizabeth’s report questioned whether policy papers and staff training at the FCA were adequate. In the case of LCF, the inability to detect indicators of fraud was the key driver of her concern, but given that the FCA has made no analysis of what happened during previous demutualisations of financial services businesses—whether customers benefited or lost out; whether customers were presented with fair information and given access to alternative viewpoints—it is difficult to see how staff could be trained to protect the consumer interest properly during a demutualisation. Indeed, all the evidence that has been compiled independently suggests that demutualisations result in worse services for consumers.

It is clear that Dame Elizabeth thought that the FCA was not fit for purpose. It did not protect LCF customers, despite repeated wake-up calls. Similarly, given the complicated nature of financial services businesses, the customers of a financial mutual are not always well placed to make a judgment about whether a vote for a conversion is in their interest; they rely on the advice of others. Customers are not given even-handed information by boards wanting to demutualise—they are certainly not in the case of Liverpool Victoria—to allow them to make an informed decision. The FCA has a critical role, and it needs to exercise a little more robust direction to the board of Liverpool Victoria. Similarly, legislation for friendly societies needs updating so that it properly protects consumers’ assets and ensures that regulators can properly protect consumers during demutualisations.

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[The Economic Secretary to the Treasury (John Glen)]

It is a great honour to speak in this debate and to have worked with the pensions Minister—the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham (Guy Opperman)—to bring forward this legislation. Many Members of this House, if not all, will have constituents who have been affected by the issues that we have dealt with and discussed this afternoon.

I am pleased that the Bill has the support of Members across the House. I have listened carefully to the debate. Observations have been made about the FCA and about the House’s confidence in its conduct; I will seek to address those points and to respond to the important points raised by several hon. Members about the compensation scheme for London Capital & Finance.

Let me begin with the scope of the compensation scheme and what it means in relation to the Government’s approach to future firm failures—a point that the right hon. Member for Hayes and Harlington (John McDonnell) and others raised. The LCF is not the only mini-bond firm that has failed in recent years. The Treasury, in collaboration with the FCA, has examined every mini-bond issuer known to have failed in the past eight years. Following that detailed analysis, the Government are satisfied that the circumstances surrounding LCF are truly exceptional.

As hon. Members may already be aware, the issuance of mini-bonds is not regulated by the FCA. As my hon. Friend the pensions Minister set out, LCF was an FCA-authorised firm despite not receiving any income from regulated activities. LCF is unique in that regard; indeed, it is the only mini-bond issuer that was authorised by the FCA and that sold bonds to on-lend to other companies. That is important, because one of the central findings in Dame Elizabeth Gloster’s excellent report is that because LCF was authorised, the FCA should have considered its business holistically, including the unregulated activity of issuing mini-bonds. The FCA cannot be said to have the same responsibilities with regard to unauthorised firms. Although the Government have not seen evidence to suggest that the regulatory failings at the FCA caused the losses for bondholders, they were a major factor that the Government considered when deciding to establish the scheme.

I pause to acknowledge the representations made by the hon. Members for Strangford (Jim Shannon) and for Kirkcaldy and Cowdenbeath (Neale Hanvey) and by my hon. Friend the Member for Leigh (James Grundy). I will set out in due course, in the coming months, the details of how the scheme will operate. I am very happy to take correspondence on individual cases, but I think it would be inappropriate to try to address at the Dispatch Box this evening every single case raised. However, I have received and read many letters from individuals who have lost money after investing in LCF and other failed mini-bond firms, including Blackmore Bond and Basset & Gold, which were raised in the debate.

I sincerely extend my sympathy to all those affected, as I know that many individuals have suffered financial hardship—severe financial hardship, in many cases—as a result of their investment losses. However, I must be clear that the Government cannot step in to pay compensation in respect of every failed financial services firm. That falls outside the financial services compensation scheme, would create a moral hazard for investors and would potentially lead individuals to choose unsuitable investments, thinking that the Government would provide compensation in all cases if things went wrong.

The Government’s approach follows the historical precedent. I note that only three compensation schemes have been established in the past 35 years—for Barlow Clowes, a Ponzi scheme that failed in the late 1980s, Equitable Life and LCF—despite many investment firms failing over that period. The Government are also seeking to ensure that the situation never arises in the future. In April, we launched a consultation with proposals to bring mini-bonds into FCA regulation.

The right hon. Member for Wolverhampton South East (Mr McFadden) asked a number of questions about the Government’s confidence about the FCA’s capability. As the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham mentioned, the transformation programme that the new chief executive, who has been in post for just over eight months, is undertaking at pace is designed to empower the organisation at all levels to hear the representations that the right hon. Member for Wolverhampton South East made, to act on them, and to deal proactively with the cases that are raised.

[Gareth Thomas]

It is encouraging to hear the Minister’s confidence in the transformation programme. Given the concerns that consumers might lose out in the demutualisation of Liverpool Victoria, will he sit down with the new chief executive of the FCA and go through how the FCA will ensure that consumers’ interests are properly protected if that demutualisation goes ahead?

[John Glen]

I thank the hon. Gentleman, as ever, for his representations. He has been a determined campaigner for that sector during my tenure. I have regular conversations, at least every six weeks, with the chief executive of the FCA, and we discuss a whole range of matters. I would be very happy to discuss that matter with him when I next speak to him in the next few weeks.

As Members from across the House have recognised today, the measure concerning a loan to the board of the Pension Protection Fund, set out in clause 2, is vital to ensure that those defrauded of their pensions by scam pension liberation schemes are able to access the compensation that they deserve. The Bill will ensure that those whose pensions have been unjustly targeted by fraudsters receive their pensions. We must continue to provide a safety net for people across the UK, who deserve to have confidence that they will have a pension pot for their retirement. I note that a number of observations were made about the ongoing challenge of dealing with the evolving nature of financial services firms and the sophistication of scams. The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Hexham, and I are working across Whitehall to bring an effective resolution to this matter.

I acknowledge that Members from across the House have supported the principles of the Bill, and I welcome the support that it has received. It will offer some relief to the enormous distress and hardship suffered by LCF bondholders and victims of fraudulent pension liberation schemes. It is an important Bill, and I want to move as quickly as possible from Royal Assent to enact it and deliver that compensation. I hope that right hon. and hon. Members will support it this evening.

Question put and agreed to.

Bill accordingly read a Second time.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill:

Committal

The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 17 June.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill may be programmed.—(Alan Mak.)

Question agreed to.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill, it is expedient to authorise the payment out of money provided by Parliament of:

(a) expenditure incurred by the Treasury for, or in connection with, the payment of compensation to customers of London Capital & Finance plc; and

(b) loans by the Secretary of State to the Board of the Pension Protection Fund.—(Alan Mak.)

Question agreed to.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (ways and means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill, it is expedient to authorise such levying of charges under section 189 of the Pensions Act 2004 and Article 171 of the Pensions (Northern Ireland) Order 2005 as may arise by virtue of that Act.—(Alan Mak.)

Question agreed to.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (First sitting)

Gareth Thomas Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[The Chair]

Thank you. I call Gareth Thomas—you have six minutes.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

Q Thank you, Ms Ghani. I would like to take you back to the FCA’s handling of the consumers who phoned up the FCA about London Capital & Finance. Can you tell me whether there was ever a meeting between FCA officials and some of those customer investors—unsophisticated or sophisticated, depending on the language that the FCA might want to use? Was there ever an actual meeting that took place between FCA officials and those customers?

Sheree Howard: Could I ask for clarification? Are you asking about during the time that LCF was in operation, or subsequently?

[Gareth Thomas]

First, during the time that LCF was in operation.

Sheree Howard: I am not aware of any, but I would need to go and check that.

[Gareth Thomas]

Q Has there been any meeting with them subsequently, perhaps to help with the lessons learned process within the FCA?

Sheree Howard: I think there has been, but I would need to go and check the details on that and get back to the Committee separately, if that is okay.

[Gareth Thomas]

Q Moving forward, do you think that if a substantial number of consumers got in touch to raise concerns about the way a particular financial services business was operating, it would be sensible for the FCA to meet those consumers or just deal with them over the telephone or by letter?

Sheree Howard: As part of our transformation programme, we are considering our approach to consumer engagement and what that looks like, recognising some of what we have seen here and making sure that we are serving the UK public in the best way we can, both through information provision and by ensuring that their voices are heard.

[Gareth Thomas]

Q With due respect, you have not really answered my question, so let me ask you specifically: if a series of consumers phoned up separately to raise concerns about the way a major financial services business was operating, would you seek to meet them to try to guide your handling of the issues around that financial services business?

Sheree Howard: Our focus initially would be to gather that intelligence and use it as quickly and urgently as possible to act against whatever has been raised. That would be our primary focus—making sure that we gather as much evidence or intelligence from them as we can.

[Gareth Thomas]

Q So you would gather the intelligence and the data, but if they asked for a meeting with you, would you turn that request down or accept it?

Sheree Howard: I am sure we would consider it. From my perspective, of course we want to listen to them, and we would offer to meet them, if they wish to.

[Gareth Thomas]

Q But you would meet the representatives of the business if they asked for a meeting.

Sheree Howard: For the businesses that we regulate, authorise and supervise, yes, we would. As I said, we would take it into consideration and—potentially do what we do with whistleblowers, for example,

[Gareth Thomas]

Q But you would accept that there is a risk of a disconnect between the way in which you handle the business owners or business management and the consumers of the business. You might agree to meet the consumers, but you might not. But you would meet the business.

Sheree Howard: I think I ought to clarify. Obviously, meeting with lots of individual consumers would take a very significant amount of resource. We do meet groups of consumers on occasion to hear concerns. We meet lobby groups, consumer networks and things like that, to hear those consumer voices. We obviously also have a consumer panel, so we meet ranges of consumer representatives in a number of circumstances. If you are asking me whether we would meet every consumer who phones up or who asks to phone up, that would be slightly more difficult. We do on occasion—for example, under the complaints scheme—meet a consumer who has a complaint, if that is the best way for them to get their concerns across. It is very individual and depends on the circumstances.

[Gareth Thomas]

Q Okay. One of the other criticisms that Dame Elizabeth Gloster made was around the policy papers that were produced and the way they dealt with fraud. Can you tell me how those policy papers are being handled now? Are they still in use? Has the process of writing them been reformed in any way?

Sheree Howard: In any initiative we are very focused on its operationalisation. When a paper comes through, we are very focused on what would happen once that policy goes live—our ability to supervise through it and how it would be implemented in the organisation to make sure it is as effective as it can be.

[Gareth Thomas]

Q The reason I asked that is because one of the biggest issues before the FCA in terms of its handling of consumers is the question of the demutualisation of Liverpool Victoria. I have searched the FCA website, as have others, and cannot find any policy paper at all on how the FCA will handle the consumer issues involved in the demutualisation of a major business. Why is that lacuna in existence?

Sheree Howard: I am aware that the FCA has met you about this area. I am very conscious that there will be future discussion between the EST and our CEO Nikhil Rathi on that matter. We have clear guidance about how we handle part VIIs and the role of the independent expert in those, which LV would go through if it went through a demutualisation process.

[Gareth Thomas]

Q Would you be able to show me that guidance?

Sheree Howard: I will find what we have and send it to you.

[The Chair]

Ms Howard, you responded to Mr Thomas’s first question by saying that you would write to us. May I point out to you that you must write your response to both questions today? Minister Opperman, do you have any questions?

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[The Chair]

I call Mr Gareth Thomas.

[Gareth Thomas]

I apologise, Ms Ghani. I mis-spoke earlier; it is probably a lack of practice. My questions actually relate to the third group rather than this one.

[The Chair]

No problem. I now come to Minister Opperman.

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[The Chair]

I now call Mr Gareth Thomas. You will be pleased to know the witnesses are with us until 11.25 am, Mr Thomas.

[Gareth Thomas]

Q Thank you, Ms Ghani. Dame Elizabeth, can you tell the Committee whether you are confident that there is now at the FCA a proper audit and lesson-learning process from each financial regulatory case that they handle?

Dame Elizabeth Gloster: I do not think I am in a position to do that for this reason: I produced my report and recommendations. I presented to the new chief executive officer at the FCA, to some of his senior staff and to the non-executive directors. As you know, the FCA at all levels has accepted the recommendations in my report. It has said that it is addressing the problems but my team and I have not been tasked—I say that thankfully, I think—to go in and conduct a subsequent audit of whether our recommendations have, indeed, been implemented, so that what we identified as systemic failures have been addressed. As I already said in a previous answer and I said in my report, I believe that the implementation of the recommendations should be closely monitored and should be audited to ensure that things have changed. However, I am not in a position to know that.

Dorothy Cory-Wright: May I add one point on that? I want to point out that Dame Elizabeth’s work concluded in the time period January 2019 and we were also told subsequently by the FCA, which we have not verified independently, that work had been going on during the period prior to our recommendations being made. It may be that that has been the subject of internal audit, but we just do not know about that.

[Gareth Thomas]

Q Presumably, though, Dame Elizabeth, given how much time you put into the report, just professional curiosity might mean that you would want to know whether there has been the scale of cultural change that you identified as the top lesson to be learned from the LCF scandal. I ask whether the new chief executive of the FCA has offered to meet you to try and explain the scale of cultural change that has happened subsequent to your report.

Dame Elizabeth Gloster: We certainly had a meeting, as I said a moment ago, with the new CEO. As I said in my report, the FCA’s response should involve an assurance exercise to confirm that any steps taken have achieved the desired objective. Indeed, it is important and was a significant feature of my report that there should be some sort of audit process that would be made publicly available.

[Gareth Thomas]

Q Okay. I want to ask the Transparency Task Force witnesses: one of the issues before the Committee, as you rightly identify, is whether anything like the LCF scandal could ever happen again in the future. Let us take a hypothetical example. Say there is a major financial services business with more than a million customers. Its board said one thing to its customers—indeed, its leadership said it vigorously over a period of time—only then to advocate the complete reverse of that within the space of 12 months. Is that the sort of thing you would hope the FCA nowadays would properly regulate and would not be too worried about perimeter issues?

Andy Agathangelou: I do not think we need to talk hypothetically about whether there is a chance that a case like LCF could happen again. We believe cases—plural—like LCF are happening right now and we have evidence to support that claim. I will pass over to Mark for any further comments that he would like to make, but I will commit to providing all the Committee members with evidence relating to a range of issues that I believe will lead to the conclusion that this is a very serious problem that has not yet gone away. It is happening now.

Mark Bishop: I agree with that. I would just like to give you a few examples of what I mean. I would like to pick up on something that Dame Elizabeth said, because I strongly agree with it, which is that the single biggest problem that the FCA has is cultural. The problem with cultural change is, first, it takes a while to fix, even if you are trying to fix it. Secondly, the closer you are to it, the harder it is to spot the problems, let alone know how to fix them.

One of the first things that Nikhil Rathi did in response to the two independent reviews published in December was to announce the appointment of an executive director for transformation. This is a new role that has never existed before. He did not advertise the job externally. He gave it to Megan Butler, and Megan Butler is a name that is mentioned in Dame Elizabeth’s report as one of the people who held a position of responsibility in relation to LCF. She does not apportion blame specifically, but she does apportion responsibility. I believe that had Raj Parker not succumbed to FCA lobbying to also redact the names of executives, her name would have appeared in that document as well. She may be a highly intelligent individual and acting in good faith, but she was literally a founder employee of the Financial Services Authority in 2000, and I would question whether a fresh pair of eyes and a fresh mind might be better suited to the job of transforming the organisation.

To use the hypothetical example of whether something similar might happen again, Dame Elizabeth helpfully pointed out in her report that, prior to the summer of 2016, LCF did not have authorised status from the FCA, and therefore it had to get its promotions approved by a third party that was on the register. This was a firm called Sentient Capital London Ltd. The first complaint or notification into the FCA that there were concerns about whether those promotions were accurate happened in January 2016, five and a half years ago. I looked on the FCA register just last Friday when I knew I was coming to this session to see whether there was any investigation under way against that firm or its directors, or whether it had a limitation attached to its registration that meant that it could not approve promotions for third parties, and I found that none of those things has happened.

So not only could another LCF happen, but it could happen using one of the same firms today, five and a half years on, and that seems to me an example of the complacency of the FCA that is, in the view of most campaigners, culturally where the problem is. Also, Gareth Thomas talked very early on in this evidence session about the voice of the consumer and to what degree are consumers’ voices being heard in the FCA. I think a genuine transformation of the FCA would have consumer voices, including campaigners, very much at the heart of it, and I do not think that that is happening.

[Gareth Thomas]

Q Thanks very much. I want to come back to the extent to which consumer voices get heard. Dame Elizabeth, can you or members of your team set out for the Committee whether there ever were meetings between the FCA and the groups of customers of LCF who were complaining about its products and its mis-selling?

Dame Elizabeth Gloster: Between the FCA and bondholders and LCF? You mean after the company became insolvent or—

[Gareth Thomas]

And before, because there was a pattern of customers trying to get in touch with the FCA to complain about LCF’s products. I am interested to know whether there was ever any attempt to meet that group of customers by relatively senior people within the FCA.

Dame Elizabeth Gloster: Let me answer that in this way. First, it is clear, as my report sets out, that a lot of complaints were made or questions raised by consumers and bondholders, or prospective bondholders, and they were not dealt with adequately. There is a full chapter dealing with that. One of the criticisms that I made was that the communication or the recording of complaints was not adequate. I will ask John Bedford to come in here, but I do not think that there was, before the company went into administration—or was shut down, effectively, by the FCA—any meeting with groups of bondholders. John, can you help me on that?

John Bedford: Of course, Dame Elizabeth. As far as we are aware in relation to the intervention in 2019, there were no meetings between bondholders, or groups of bondholders, and the FCA.

[The Chair]

Mr Thomas, can you make this your final question, please?

[Gareth Thomas]

Sure. The biggest issue for the FCA in terms of particular cases at the moment and consumers is, as I understand it, the potential demutualisation of Liverpool Victoria. I wonder whether any of the witnesses find it extraordinary that no policy paper has been published by the FCA on the handling of demutualisations.

[The Chair]

Mr Thomas, I am afraid your current question is not within the scope of the Bill, so unless you have another question to ask, I will move to another Member.

[Gareth Thomas]

That is fine.

[The Chair]

Thank you. Minister Opperman, we have four minutes.

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill (Second sitting)

Gareth Thomas Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

[Gareth Thomas (Harrow West) (Lab/Co-op)]

[Mr McFadden]

--- Later in debate ---

The final point covered by the amendment is the question of any limitations on taxpayer exposure.

[Gareth Thomas]

[Mr McFadden]

[Peter Grant (Glenrothes) (SNP)]

[Gareth Thomas]

[Peter Grant]

[Gareth Thomas]

[John Glen]

--- Later in debate ---

[Mr McFadden]

[Gareth Thomas]

[Mr McFadden]

[Peter Grant]

[Gareth Thomas]

[The Chair]

[Gareth Thomas]

[The Chair]

--- Later in debate ---

Finally, another court judgment could change things again, if it were to rule differently and the lawyers then pointed to a number of additional issues related to the ruling that had not yet been clarified. As a result, the pensions sector is still having to work under a degree of uncertainty, and obviously it is a central principle of any wise policy to try to reduce uncertainty. I hope that a report could to some extent alleviate that uncertainty. I appreciate that it would not completely resolve it, but it might be of assistance to businesses in the sector that are providing the services that we value so much, so I hope that the Minister will consider our amendment.

[Gareth Thomas]

[The Chair]

Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill

Gareth Thomas Excerpts

Report stage & 3rd reading
Wednesday 22nd September 2021 Commons Chamber

[Peter Grant]

It may well have been achieved by the Government’s response to the report, but the Gloster report achieved nothing; it only achieves change if the Government accept its recommendations. An amendment that was not pushed to a vote at an earlier stage of proceedings would have required the Government to give regular reports back to Parliament as to what they are doing with the Gloster report. Regardless of whether that amendment had been carried, I would hope that the Government will still do that.

The Government’s explanation for not even considering similar schemes for other mis-selling is that the exact details of London Capital & Finance’s mis-selling were unique and that none of the other mini bond scams were identical in every way. That is probably true because no two investment scams are identical in every way. The crooks will always find a slightly different way to get more money out of the victims, or to avoid whatever detection and prevention schemes are being developed, but the differences between the two companies are tiny compared to the similarities.

[Gareth Thomas (Harrow West) (Lab/Co-op)]

I want to take the hon. Gentleman back to the point made by the hon. Member for Thirsk and Malton (Kevin Hollinrake). Is not the problem the fact that we are being asked by the Government to believe that, as a result of the Gloster report, the FCA has fundamentally changed and that there is not going to be a problem ever again with how the FCA regulates? Is there not a need for another body to keep oversight of the quality of financial regulation, and perhaps in particular over whether the FCA continues to do its job properly in the future?

[Peter Grant]

The hon. Gentleman makes a valid point, which is well worth consideration. I do not want to go into the detail of how we should fix what is wrong with the Financial Conduct Authority just now. The first thing that we have to do is recognise that it ain’t working, and regardless of what promises and assurances we have had, it still is not working. Whether that is best dealt with by putting yet another monitor on top of the regulator to monitor it, I do not know, but there has to be recognition that the existing scheme of regulation, as it is carried out by the Financial Conduct Authority, is simply not fit for purpose. The same applies to the parts of the regulatory environment that fall under other Government Departments. It is not only Treasury Ministers who have such responsibilities.

Let me return to the similarities between London Capital & Finance and Blackmore Bond. They both misled their victims into believing that their activities were regulated by the Financial Conduct Authority. The only difference was that London Capital & Finance had a registration for something else, which it hid behind. Blackmore Bond did not have a registration of its own, but it hid behind the registration of other companies, which knowingly allowed their names to be associated with the marketing and selling of its products. The intention in both cases was the same, and that was to mislead—effectively, to con the customers. The results were the same: thousands of people lost everything. I do not understand why there is such resistance in the Government to saying that the remedy should be the same, or even to consider that the remedy should be the same.

In the immediate aftermath of the collapse of London Capital & Finance, the Financial Conduct Authority took steps to outlaw the marketing of mini bonds to retail investors. It outlawed the very practice that was at the cornerstone of London Capital & Finance’s business plan, as it was for Blackmore Bond and many others. There is still no explanation as to why, when the FCA was able to act so swiftly and decisively to close the door after the horses had gone, it took no effective action to stop those mis-sales years earlier, after it had been given credible and persuasive evidence of exactly what was happening in the mini bond market.

In earlier stages, I have raised concerns that there were other Blackmore Bonds just waiting to come to our attention. There were probably other mini bond-based businesses about to collapse. There were probably other investors about to face the awful reality that they had lost everything. That might be happening even as we discuss this Bill.

Last week, none other than Private Eye magazine reported that another mini bond company, Moregreen Capital Ltd, had written to its investors asking them to forgo their next interest payment. That might be the starting signs of severe trouble. I cannot confirm anything that was in the Private Eye article, and I cannot confirm very much from the public domain about Moregreen Capital Ltd in the way that I could for Blackmore Bond, for the simple reason that Moregreen Capital has failed to file its accounts for the last two years. Its only published accounts were so early in its trading history that today they are almost certainly useless. I should also make it clear, as is often the case, that company names can be similar and that that Moregreen Capital Ltd is unrelated to some other companies with Moregreen in their name. There might well be perfectly valid reasons for the action that Moregreen Capital has taken recently. There could be good reasons why it stopped publishing its accounts, or there might be yet another group of investors who are in the first stage of a journey that sees them lose everything with, as things stand, no prospect of compensation. The best-case scenario for Moregreen Capital’s investors is that they have nothing to worry about—that their investments are safe and that they will eventually get all the funds they were promised. But even if the best-case scenario pans out with Moregreen Capital, it will only be a matter of time before the next mini bond scandal rears its ugly head. Action has been taken to prevent that precise form of financial scam being allowed again, but we need action to anticipate and predict what scams will arise in future and to prevent them before they are allowed to take place. We have to recognise that thousands of people are victims of crime. They were the victims of criminal activity and they should be compensated in the same way as other victims of criminal activity have been compensated.

The amendment does not require the Government to establish an additional scheme, but it does require them to get this debate started. We in this Parliament are ultimately responsible for the regulatory framework in these islands. We collectively, and our predecessors, are ultimately responsible for having to set in place and to enforce a regulatory environment that would have protected our constituents from losing everything.

One of the examples I cited earlier was a retired military person who told Blackmore Bond’s directors, “This is my military pension—I can’t afford to lose it.” They took it and they lost it. That person deserves compensation. They have no chance of getting compensation out of Blackmore Bond. They are not covered by the financial services compensation scheme. Surely the Government have to agree that there is a case to be looked at in such examples. We have to look at a wider compensation scheme, in the same way we have for people who lose their holiday because their travel agent goes bust. Losing a holiday, which has happened to a lot of people over the past couple of years, is not a nice thing to happen—it is a distressing thing to happen—but when people lose their holiday, at worst they lose money they could afford to spend on a holiday; when people lose their pension they are losing their livelihood for the rest of their life. There has to be better provision for compensation for those who, through no fault of their own, see their pension, their plan for retirement and the future of their family’s financial security wiped out by charlatans who right now are taking advantage of a regulatory environment that is open to abuse.

--- Later in debate ---

[Kevin Hollinrake]

That is very welcome.

The key point in the amendment is about oversight. I am concerned that the FCA is not as accountable as it could be to this House. With repatriation, a number of regulations and regulatory oversight of the FCA have now passed back to us domestically whereas before there was accountability through the EU institutions. I am concerned that we have proper oversight of what the FCA does. The hon. Member for Glenrothes and the hon. Member for Harrow West (Gareth Thomas) are quite right: the jury is still out on the FCA. It has made some bold claims that it is reforming and becoming more effective. I welcome the fact that only a couple of weeks ago it set out some clear targets for a reduction in the number of investors investing in high-risk investment and being subject to scams. There are some specific criteria that the House can now hold it to account for; I am just not clear how we do so. I can see how the Treasury does so, but it is important that the House can, too.

In the work that I have done on the all-party parliamentary group on fair business banking, we have seen numerous cases in which the FCA has not been proactive or used the mechanisms at its disposal to sanction the people responsible. That is simply unacceptable. The FCA must be a much more proactive organisation and, for it to be held account for such proactivity, we need a clear line of responsibility between it and the House and its Members. The amendment is a good attempt, but not one that I can support.

[Gareth Thomas]

I am sympathetic to the broad thrust of the amendment tabled by the hon. Member for Glenrothes (Peter Grant) and his concern, which I alluded to in my intervention, that the Government, and certainly the FCA, appear to be saying, “Don’t worry—we’ve had a change of leadership and everything is going to be all right now. You don’t need to worry about the quality of the regulation of investment firms going forward, or the implementation and enforcement of consumer financial regulation, whether in this case or more generally.” I have some sympathy with the point of the hon. Member for Thirsk and Malton (Kevin Hollinrake) that we should be sceptical about such a claim. It is good that Treasury Ministers will be having a more regular dialogue with the FCA, partly as a result of this scandal.

As the House knows, I have taken a particular interest in the demutualisation of Liverpool Victoria. That is very different from the case of LCF, so it would not be appropriate for me to go into the particular details, but there are parallels in the treatment of Liverpool Victoria consumers and those of LCF products. Some of those parallels relate to the culture that appears to exist within the FCA. The all-party parliamentary group for mutuals received a letter from the FCA and one from the PRA, and they reveal that there have been almost 60 meetings between the regulators and the board of Liverpool Victoria, but not one meeting with its consumer-owners on its demutualisation. I wonder whether there is not a frog in hot water-type problem here, with the FCA so close to the Liverpool Victoria board in this case—and potentially to other financial firms—that it fails, perhaps accidently, to do its job on behalf of consumers with sufficient robustness.

I welcome the Dame Elizabeth Gloster report, which was excoriating in its findings. To pick out some key concerns, it said that there were “unclear” policy documents for use by FCA staff, a

“flawed approach to the Perimeter”

and a “failure to consider” the behaviour of particular businesses holistically. It also said that there was insufficient training of staff and pointed to confusion between Her Majesty’s Revenue and Customs and the FCA—our regulators—over the handling of particular issues.

I appreciate that the FCA has not only had a change of personnel but brought forward proposals for a consumer duty to try to rebuild some confidence. However, my problem with the duty, which it consulted on until the end of July, is that there is no sense of understanding the difference between consumers who also own a business—a mutual in this case—and consumers per se, or a willingness to take additional actions for consumers who are also owners. I worry about whether that additional duty will be robust enough.

[Rehman Chishti]

I really appreciate all the work that the hon. Gentleman has done on this matter. On the consumer duty, my concern, raised with me by local residents, is that the company was allowed to continue trading without investigation in 2015 after warnings of malpractice and maladministration. With his expertise and experience, does he think that, whether through the consumer duty or further regulation following the Gloster inquiry, the measures proposed would prevent what happened in 2015?

[Gareth Thomas]

The hon. Member invests an awful lot of confidence in me to predict what might happen, but I can well understand a Conservative looking to the Labour party for such guidance. I certainly hope that the consumer duty and better enforcement will help to prevent such a terrible debacle from happening again, because, as the House has rightly noted, many good people have lost an awful lot of money and deserve the compensation that the Bill will provide. However, many others who have been victims of similar cases would have also merited better protection from the FCA.

I will ponder aloud, in response to the Minister having some sympathy with the points made by the hon. Member for Glenrothes and my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) in Committee, whether there is a need for a smaller body that does not just concentrate on the FCA but looks at some of the strategic issues around consumer protection and financial products in particular, and has a small number of inquiries each year looking at the performance of regulators in that regard, in part to help prevent a repeat of the LCF debacle.

As a model for such a body—I do not suggest it is perfect—I put on the Floor of the House, so to speak, the Independent Commission for Aid Impact, which the House uses to consider how our international aid money is being spent and the strategic challenges in that. It is a small, dedicated body that operates in a completely different sphere from this, but it produces important and useful reports that are used by the relevant Department, experts in the sector and, crucially, the International Development Committee. I wonder whether such a body would be appropriate to keep the PRA and FCA’s feet to the fire. It could be used by the Treasury Committee, and indeed other Committees of the House, to assess the quality of consumer financial regulation and the job that the FCA, PRA and other regulators are doing to protect consumers from any repeat of the LCF debacle.

[Rehman Chishti]

The hon. Gentleman’s idea of an independent committee should be considered among the wider tools to get the right support for consumers. Of course, I have admiration for him because, being a fair man, I see he also went to the University of Wales Aberystwyth, and we were taught at university always to respect other colleagues’ talents. That is why I respect his expertise on this matter.

[Gareth Thomas]

I am not sure I need to respond other than to thank the hon. Member for his intervention.

[Kevin Hollinrake]

I am sure that many other people in the House often get frustrated, as I do, at unaccountable independent bodies or arm’s length bodies, and I might mention not least the FCA, possibly the Environment Agency and perhaps the NHS as well. Would it not be better for the FCA to have a direct line of accountability to those who are elected by the people of this country and for the body the hon. Member recommends to be made up of parliamentarians from either House?

[Gareth Thomas]

The hon. Member may be right. I simply put out the idea at this stage, and I hope Ministers will be sympathetic to it, that we should not just accept the sense that, following Dame Elizabeth Gloster’s report, the payment of compensation and the introduction by the FCA of this new consumer duty, everything is suddenly all right in the world of consumer financial regulation. Perhaps Ministers on the Treasury Bench are inadvertently suggesting that. I think another step needs to be taken to hold the feet of regulators to the fire.

I will briefly raise two other concerns about financial regulation and some of the lessons that need to be taken from the LCF debacle, which the amendment from the hon. Member for Glenrothes helpfully gives me the opportunity to raise. The first is the idea that all the information available to the boards and the management of companies that has to be shared with the FCA and the PRA from time to time should be regarded as commercially sensitive. Clearly, there is genuinely commercially sensitive information that it is right for companies and businesses to keep for themselves. However, I fear—certainly in the case of Liverpool Victoria, which I have been looking at—that the excuse that information is financially sensitive is being used to deny consumers’ legitimate rights to know what the future holds for the business in which they have invested their savings or money. I gently suggest that that topic is worthy of a review in itself, potentially with changes to regulatory practice and, if need be, to legislation.

Lastly, the existence in legislation at the moment of provisions for so-called independent experts to look at the decisions that boards are taking in the context of demutualisations are a recipe for regulatory failure. In the case of Liverpool Victoria, independent experts are being appointed by the board, paid by the board and briefed by the board. Obviously, it is fairly easy to predict what the outcome of the independent experts’ work is going to be: to recommend largely what the board wants to happen. That is another issue that needs to be looked at.

I put those points on the record to suggest that Ministers should not be complacent about the quality of the FCA’s performance. There needs to be a bit more of a robust challenge and a look again at how financial regulation works.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

I want to use the opportunity provided by the amendment to raise a few points, particularly about clause 1, and to put them to the Minister. I thank Dame Elizabeth Gloster and both the Treasury Committee and the Work and Pensions Committee for the work they have done on this issue.

The issues covered by the Bill have been widely set out in debates on Second Reading and in Committee. They include: the wholly deficient practices at the FCA that meant that hundreds of reports of harm were not acted on, which was described by Dame Elizabeth Gloster as an “egregious” failure of the FCA to fulfil its statutory duties; the fact that this failure allowed LCF to continue in operation for years longer than it might otherwise have, thereby multiplying the harm to investors; the reassurance at one point from the FCA that what was happening was not a scam; the impact of the halo effect in having a regulated firm selling unregulated products, leading unsuspecting investors to believe that these products were far safer than they actually were; the loss of a whistleblower’s letter three years before the firm’s collapse, and the damning conclusion from Dame Elizabeth Gloster that the loss of that letter probably did not make any difference, because the FCA was so dysfunctional that, even if it had not been lost, it would not have been acted on; the repeated failure to join the dots and the treating of each LCF transgression—for example, on its use of financial promotions—as an isolated incident, when instead it was a pattern of behaviour designed to use its regulated status to bolster confidence in unregulated products; and the public disagreement between Dame Elizabeth and the Governor of the Bank of England about the issues of responsibility and personal culpability.

I served on the Parliamentary Commission on Banking Standards, which said that

“a buck that does not stop with an individual stops nowhere.”

That quote has been much used in the debate about this issue, which has raised sharply the limitations of collective accountability and the question of whether in this case the buck really stopped with anyone. Of course, most importantly of all, there is the issue of the distress and the financial loss to investors and the question of how they should be compensated. All of this has led to the Government stepping in with this Bill to authorise compensation up to a certain level for investors.

Based on the amendment, I want to put a number of questions to the Minister arising from the Bill. First, why has compensation been set at 80% of the Financial Services Compensation Scheme maximum of £86,000, not the full level? That is probably the main outstanding concern of LCF investors, who are grateful that compensation will come but who cannot understand the 80% cap given the manifest failures set out in Dame Elizabeth’s report. Are the Government completely fixed on this 80% figure, or is there any prospect of that being reconsidered?