Financial Conduct Authority and Blackmore Bond plc

Kevin Hollinrake Excerpts

Wednesday 30th June 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP)]

Before we adjourn, I wish to draw the attention of the House to the collapse last year of Blackmore Bond plc and in particular to look at what the Financial Conduct Authority did, what it could have done, and what it failed to do to prevent this.

Blackmore Bond plc was incorporated in July 2016, went into administration in May 2020, and has since gone into liquidation. Between October 2016 and November 2018, it raised £46 million in loans, known as mini-bonds, almost all of it from small-scale individual investors. They were repeatedly told that their investment was guaranteed to be paid back on time with regular interest payments. By the time the joint administrators had disentangled the company’s financial affairs, it was obvious that none of that £46 million was left to repay the bond holders. Their “guaranteed” investment of £46 million had been reduced to nothing.

Obviously, primary responsibility for that must lie with the company’s directors, Phillip Nunn and Patrick McCreesh, who were also the joint owners not only of Blackmore Bond but of about two dozen related companies. I will disclose some information later that may help Members to understand just how culpable I believe those two are. However, whether their conduct is found, in due course, to be criminal, civilly unlawful or just downright despicable, the scandal yet again raises serious questions about the regulatory framework that allowed Nunn and McCreesh to persuade people to put money they could not afford to lose into high-risk investments where losing everything was always a possibility.

In fact, an experienced investment adviser, looking at the promotional material the company sent out, could only conclude that losing everything was not only a possibility but almost inevitable. That is probably why the directors of Blackmore Bond did not approach investment houses or experienced investors; they deliberately targeted people they thought would be an easy touch.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

The hon. Gentleman mentions the regulatory framework, and I am sure that he will go on to say whether he feels there were also shortcomings from the regulator itself in this case. The FCA’s attention was drawn to the boiler-room tactics of Blackmore Bond and the fact that it was pretty much a Ponzi scheme back in March 2017, yet three years later the company was still operating. It is simply unacceptable that the FCA should have taken that approach and not been more proactive.

[Peter Grant]

For the second time in a few days, the hon. Gentleman has managed to read my notes a couple of paragraphs ahead of me. I am going to come on to that.

My concerns cover not just the Financial Conduct Authority but other regulators, such as Companies House, the Insolvency Service, the Financial Reporting Council and the professional bodies that regulate the audit of limited companies. Of those, only the FCA falls directly under the remit of the Treasury, so that is what I will focus on tonight, but I will continue to apply for debates so that the part played by other regulators can be examined.

--- Later in debate ---

[John Glen]

I have set out the record as the FCA has presented it. I am sure that the hon. Gentleman will wish to continue correspondence with the FCA on some of those unresolved matters. However, I do make the distinction between the different responsibilities that the FCA has with regard to the different actors in this case.

It is only right that we do our utmost to minimise the chance of episodes like Blackmore Bond taking place in future, so I want to turn to the regulation of mini-bonds and the steps we are taking to safeguard consumers, which was a key focus of the hon. Gentleman’s remarks. I want to be clear to the House that the Government are committed to ensuring that the financial services sector is well regulated and consumers are adequately protected. That is why in April we launched a consultation that includes proposals to bring the issuance of mini-bonds into regulation. This follows the action taken by the FCA to ban the promotion of high-risk mini-bonds. This work is the culmination of a review into the regulation of mini-bonds that I announced in May 2019, and it delivers on one of the recommendations of Dame Elizabeth Gloster’s recent report. The consultation closes next month, in July, after which the Government hope to bring forward plans to legislate in the autumn.

The hon. Member for Glenrothes also referred to the financial promotions regime, and I think that underlying that was a concern about what the Government are doing to improve the efficacy of the regime. We continue to keep the legislative framework underpinning the regulation of financial promotions under review, including whether it is suitable for the digital age. The Government have set out our intention to bring forward legislation to create a regulatory gateway for authorised firms approving the promotion of unauthorised firms. That change is designed to strengthen the regime by ensuring that the firms able to approve financial promotions are limited to those with the relevant expertise to do so. The FCA will be able to better identify when a financial promotion has breached the restriction and take action accordingly.

[Kevin Hollinrake]

The Minister is doing a lot to close down opportunities for these scams, but there is a further way that we could take this forward, which we have discussed. Google has today said that it will ensure that all firms advertising on its platform are regulated firms. We could require that of all platforms and all firms that provide an internet channel, for example through the online harms Bill, so that all internet advertising in this area is regulated.

[John Glen]

I thank my hon. Friend for his intervention. He speaks with some authority on these matters. There is a process that will continue, as he knows, through the scrutiny of that legislative vehicle. We do need to make sure that, overall, including through the Department for Digital, Culture, Media and Sport’s online advertising review, we come out at the right place in dealing with these significant challenges for consumers.

As well as introducing new legislation to protect savers, it is right that our regulator also closely examines its own operations, to ensure that it can protect consumers as effectively as possible. As a result, the Government welcome the FCA’s ongoing transformation programme, which is introducing reforms that will fundamentally change the way it works. The programme will help the regulator become more efficient and effective by, among other things, enhancing its use of technology in order to make interventions earlier, which clearly is desirable.

It is heartening to see that significant steps have already been taken. Those include important structural changes within the organisation, as well as the appointment of the FCA’s first chief data information and intelligence officer. I particularly welcome this focus on improving the FCA’s use of data and analytics, which will improve the efficiency and speed with which the regulator can act.

These are serious matters, and we have spoken about the number of our constituents who have been adversely affected. I regularly meet the FCA’s chief executive, Nikhil Rathi, to discuss the transformation programme and monitor progress. There can be no complacency. This is a complex area where financial services are evolving all the time, as are fraudulent activities. My hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) mentioned the innovation announced today by Google, which is a welcome step, but we will need to look at these matters and at the experience through different cases, such as the Blackmore Bond, in order to get this right.

I close by reiterating my deep sympathies to all those who have suffered as a result of the Blackmore scheme. As a Government, we recognise that financial services are constantly evolving and the regulatory system must, therefore, be ready to respond. As I have highlighted this evening, we are committed to a process of continuous improvement in all dimensions to ensure our regulations benefit both UK consumers and the wider economy.