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

Peter Grant Excerpts

2nd reading
Tuesday 8th June 2021 Commons Chamber

[Peter Grant (Glenrothes) (SNP) [V]]

I am pleased to be able to speak in this short debate and to confirm that the SNP will not oppose Second Reading, but I am angry and frustrated that the debate needs to take place at all. Most parts of the legislation are only necessary because of a catalogue of failures of Government, of legislation and of regulators.

I will speak first about the second of the two parts, on the Pension Protection Fund. One of the first times I spoke in Parliament, just a few days after my maiden speech, I expressed concerns about pension liberation scams. I asked the then Secretary of State what steps the Government were taking to protect people from them, to make sure changing the rules would not just make open season for the scammers. We now know that the answer to that question is that the Government were doing nothing, or if they were doing anything, they did not do nearly enough. Some £350 million has been stolen from people’s pensions using these scams. Those pensioners should be compensated from the Pension Protection Fund, and I would support a provision in clause 2 to allow that to happen.

Clause 1 sets up the promised compensation scheme for victims of the London Capital & Finance scandal. About 11,000 people were affected, of whom 2,000 got some compensation and 9,000 got nothing. I do not think any of the 11,000 understand why some qualified for compensation and some did not. It is very welcome that the Bill will provide some redress for the 9,000 or so bondholders who would have otherwise got nothing. It is welcome, but it is not enough.

The House of Commons Library has described the Government’s decision to set up the compensation scheme as “a somewhat exceptional response.” The response is exceptional, but the scandal to which it responds is anything but. It is the latest, and sadly almost certainly not the last, in a roll of shame that includes Equitable Life, Premier FX, Connaught, Henley pensions, Blackmore Bond and many others. The victims of some of these schemes get compensation, but tens of thousands get nothing.

Blackmore Bond, for example, went into administration in May 2020 and its bondholders are unlikely to see any of the £46 million investment that the company’s directors had promised them was safe and guaranteed. One of my constituents lost his £40,000 life savings to Blackmore Bond. I have to disagree with the Minister’s claim that LCF was unique or even distinctive in any material way from Blackmore Bond and various other mini-bond failures. LCF hid behind its own FCA registration knowing that it had nothing to do with the products it was selling. Blackmore Bond hid behind the FCA registration of other companies that acted as its representatives. The intention in all cases was clear: to mislead investors as to the degree of protection that the Financial Conduct Authority would give them, when in most cases the companies knew that the FCA would give no protection whatever.

Like LCF, Blackmore Bond could have been stopped much sooner if the Financial Conduct Authority had acted on the warnings it was receiving as long ago as early 2017. One came from an eyewitness who offered to let the FCA into his office to watch and listen at first hand to the “unlawful” telephone sales practices that the company’s representatives, Amyma Ltd, were using—his words, not mine. It took two and a half years for the FCA to remove Amyma’s right to act as authorised representatives. Several months later, again as part of its response to the collapse of LCF, the FCA banned the sale of mini-bonds to small retail investors. Some £26 million of the total investor losses in Blackmore Bond were from bonds sold after March 2017—after the Financial Conduct Authority had enough information to take decisive action, but before it had taken the action that was needed.

I want to see legislation, or possibly even an amendment to this Bill, that makes schemes similar to the LCF compensation scheme available to victims of other pension and investment scams without them having to wait for a public inquiry and a new Act of Parliament for every single one. I want to see the Government getting serious about dealing with the shysters and charlatans who too often seem to walk away unscathed from these scandals, or more likely get driven away in their chauffeur-driven luxury cars, leaving their victims in many cases almost destitute. I want to see a regulatory regime that works, not just to compensate the victims at public expense, but to stop the crooks and chancers from being able to con people out of their money in the first place.

The fact that the Minister admitted in his opening speech that paying compensation to all victims of pension or investment scams would place an unacceptable burden on the public finances is one of the biggest admissions of regulatory failure by any Government Minister that I can ever remember. While we welcome the steps taken in the Bill, the message very clearly from the Scottish National party, as it was from the Labour Front-Bench spokesman a few minutes ago, is that this is not even enough to be the start of the action needed to make people’s pensions and investments safe from the crooks.

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

Peter Grant Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

Q Are you telling us that it was a difficult thing to swallow but you now have the systems in place to deal with it?

Sheree Howard: I was not in the FCA at the time, but it was a very large assumption of remit. We have changed systems. We have implemented various programmes highlighted in Dame Elizabeth’s report on delivering effective supervision and effective authorisation programmes.

As I have already outlined, the financial services market is not sitting still; the FCA cannot sit still—hence the changes that are under way and will be a fact of life going forward. We are undertaking a significant programme to ensure that we invest in digital and data and have much greater access to the information, given the quantum of firms that we oversee.

[Peter Grant (Glenrothes) (SNP)]

Q May I start with the witnesses from the Financial Services Compensation Scheme? I am happy to let you decide among yourselves who is best placed to answer. One of the major problems with LCF was that mini-bonds were unregulated, and the same applies to a lot of other unregulated businesses involved in the same activity. If a decision was taken to make the sale of mini-bonds a regulated activity, would it cause administrative difficulties for the FSCS to start to include them in its compensation scheme?

James Darbyshire: I don’t think it would cause administrative difficulties; it would just mean an additional area of coverage for the FSCS. The cost to levy payers—to the financial services industry—would potentially go up, depending on whether there were any failures involving mini-bonds.

[Peter Grant]

Q Are you able to give an indication of how many claims or inquiries the scheme receives from people who turn out not to be entitled to compensation because their investments were unregulated?

Simon Wilson: Unfortunately, I cannot give an accurate figure, but I would be happy to look it up and come back to the Committee.

[Peter Grant]

Q I appreciate that you did not have notice of the question, but would it be fair to say that a number of investors come to the Financial Services Compensation Scheme and discover that their investments are not covered?

Simon Wilson: We certainly get calls and contact from our customers regarding investments that they made that we are unable to protect—that is correct.

[Peter Grant]

Q I shall direct my questions on the Financial Conduct Authority to Ms Howard, but if she wants to pass them on to Mr Jones please feel free to do so. The Financial Conduct Authority uses the term “unsophisticated investors” to described investors for whom investment is not a way of life but tends to be an occasional activity, investing a pension or redundancy lump sum. Do you believe that these investors understand that a company that is regulated by the FCA—that is allowed to display the FCA logo on its website—might still be involved in the sale of unregulated investments? Do they fully understand that distinction?

Sheree Howard: I will look to my colleague Robin in a moment, but Dame Elizabeth Gloster’s report highlighted the halo effect that occurred in LCF. It was unique as it was an authorised firm issuing mini-bonds, which are not regulated although the firm was authorised for other activity but was not undertaking regulated activity.

On whether unsophisticated customers understand that, we are seeking ways of working with our partners to enhance that understanding. There is certain information on that in the financial services register, but people who invest little may not understand that, so it is an area of focus for us, including thinking about how we might most effectively act against that halo effect. That includes strengthening our gateway—our authorisations process—implementing a nursery, where we look at firms shortly after to ensure that they operate in line with our norms and standards. We are looking to do that as part of our transformation programme, as well as considering legislative routes that might help—for example, not having the logo and the FCA name.

[The Chair]

May I ask witnesses to keep their responses as short as possible so that we can get in more questions from Members? Mr Grant, will you make this your final question, please?

[Peter Grant]

Q Possibly—depending on the answer.

Ms Howard, another major problem has been not the unregulated activities carried out by regulated organisations, but unregulated companies that hide behind the fact that some company associated with it is regulated—for example, if a regulated company gives section 21 authorisation for its marketing materials. I will ask the same question again: do the people being encouraged to make these investments understand that the fact that marketing material is issued by a company registered with the FCA does not mean that its activity is regulated?

Sheree Howard: In evidence as part of LCF there was substantial discussion of the financial promotions regime—of the section 21 approval regime in particular. The Government are currently considering changes to that regime to help to improve understanding by making it a specific gateway so that we can test firms that wish to give such approvals to ensure that they do so appropriately. That should help to ensure that consumers understand better.

[Matt Rodda (Reading East) (Lab)]

Q I thank the witnesses for their time in giving evidence this morning. As the shadow pensions Minister, I have a series of questions on pensions, but I preface them by pointing out to those watching proceedings today who are not pensions experts that there have been some absolutely dreadful pensions scams.

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[The Chair]

I turn now to the SNP spokesperson, Mr Peter Grant.

[Peter Grant]

Q Thank you, Ms Ghani. The Fraud Compensation Fund comes into operation only when fraud or misappropriation has been established, certainly in the view of the board. How much of a delay does that cause between the collapse of a company and the people who had put into that company getting their compensation?

David Taylor: From the point at which an application is made to us, through to our making a payment into the scheme, we would estimate that it takes somewhere between six and 18 months to process that application and establish whether the various necessary tests have been satisfied, particularly a loss to the scheme due to dishonesty, and whether all other avenues for redress have been exhausted, because we are the fund of last resort. Once the application comes to us, it is relatively quick. However, in relation to the schemes that we are talking about here, people have been waiting for some time as a result of the uncertainty about the eligibility of those schemes for FCF compensation.

[The Chair]

Can we ensure that the questions are in scope, Mr Grant?

[Peter Grant]

Q Thank you, Ms Ghani. Secondly, Mr Taylor, can you outline the basis of your calculation or estimate that the cost from historical cases will be around £350 million? Is there an appreciable risk that the cost could be significantly higher than that?

David Taylor: The way that these cases typically work is that when they become known, the Pensions Regulator appoints a professional trustee to manage the case and to seek to bring in any assets that they can, any claims against the wrongdoers and so forth. The information that we have on the amount of claims is based on information that we have gleaned to date from the professional trustees and/or the Pensions Regulator. We have been liaising with them for some years in relation to these cases.

Inevitably, it is not until they make their formal application to us and provide us with all the documentation that we can really get into the numbers, so we have greater certainty about the numbers that have already applied, perhaps slightly less certainty about the longer-term pipeline.

I think it is fair to say that, based on everything that we have done to date, we are reasonably confident about the order of magnitude of the claims that we know about. There is no legal reason why we could not get more claims in future, so I cannot say, no, that number is not going to go up. For the reasons I mentioned earlier, about these claims not being so relevant anymore, we would perhaps be slightly surprised if it went up a great deal.

[The Chair]

I now call Mr Matt Rodda.

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[The Chair]

I call the SNP spokesperson, Mr Peter Grant.

[Peter Grant]

Q Thank you, Ms Ghani, and good morning to all of our witnesses.

Dame Elizabeth, may I come to you first? You will be aware that there are amendments that the Committee will consider later that ask for the Secretary of State to be required to report various things to Parliament. In particular, one amendment asks for a report within six months on progress towards the implementation of the recommendations in your report. Clearly, not all of the recommendations will be implemented within six months, but in your view what would be a reasonable time scale for Parliament to ask the Secretary of State to come back and give us an update as to what had been achieved by that point?

Dame Elizabeth Gloster: Thank you for the question; I don’t think I am really qualified, in terms of parliamentary process, to answer it. What I can say is that it was a matter for the FCA to determine how it responds to my recommendation, and my report specifically said that any such response should involve an assurance exercise to confirm that any of the steps, whether recommended by me or otherwise, to cure the defects in the regulation process have indeed achieved the desired objective.

I believe that implementation of my recommendations should be closely monitored, but I don’t really have a view as to whether that means the Secretary of State should be required to lay a report before Parliament, or, if they are, within what timescale. There may be other ways of monitoring progress in relation to the implementation of my recommendations, such as via the Treasury Committee or otherwise.

I think that is the best answer that I can give you.

[Peter Grant]

Q Thank you very much for that. Perhaps I can frame the question in a different way: would it be reasonable to expect to see significant progress within six months in the implementation of your recommendations?

Dame Elizabeth Gloster: I would hope so, but I am not saying that in an informed way. Nevertheless, since the FCA has had my recommendations, as indeed has the Treasury, for some months how, I would hope that they are cracking ahead with implementing the recommendations right now. I suspect that the answer to your question is probably “Yes, it would be reasonable”.

[Peter Grant]

Q Thank you. I have a final question for you, Dame Elizabeth. We hear a lot about phrases such as “mini-bonds” and “mis-selling”. Can those concepts be defined clearly enough to form the basis for a wider legal compensation scheme, if Parliament and the Government were minded to do so?

Dame Elizabeth Gloster: Well, I am a lawyer, so I can define anything, I suspect—[Laughter.] At the time, mini-bonds were not defined and nobody really knew what was being referred to. But, yes, of course you can define a bond that has particular attributes and define it as a mini-bond. It is a slightly open-ended question, but I would have thought that the answer is yes, you can define a bond with particular attributes that might or might not attract protection.

I do not know whether either of my colleagues want to come in on that answer.

[Peter Grant]

I can see on the screens that they are shaking their heads, so we will take that as a “no”. For the record, I do not know whether the camera showed this, but one of the lawyers on the Committee was jumping for joy and waving his arms about when you announced, Dame Elizabeth, that a lawyer can define anything when asked to do so. You have one friend on the Committee.

Dame Elizabeth Gloster: I am not expecting people to agree with that comment; it was only a frivolous comment.

[Peter Grant]

Q I turn now to Mr Agathangelou for the Transparency Task Force. I have a question for you that is similar to the one I just asked Dame Elizabeth. You are aware that there are two amendments asking for the Secretary of State to be required to bring reports back to Parliament, which essentially start to look at the wider issues of investment, mis-selling, regulation and compensation. Do you agree that there is a need for something like that to be brought back to Parliament and, if so, why?

Andy Agathangelou: I certainly do agree. The reason I agree is because there is a mountain of evidence suggesting that there are many similar cases to LCF—Connaught, Lendy, FundingSecure, Blackmore Bond, Exmount, Bentley Global, Store First, Park First, Premier FX, Woodford.

We have to ask ourselves one fundamental question: do we want the public to have good reason to have trust and confidence in our financial ecosystem? If the answer is yes, it follows that we must also want the public to have confidence and trust in the financial regulatory framework that oversees it. Unless we get to that point, we cannot have what we want, which is a system that we can all rely on.

I would argue very strongly indeed that we must look at, for example, Blackmore Bond. The evidence is crystal clear that there has been catastrophic regulatory failure. We need to do what is uncomfortable and open up the can of worms that is there, and the can of worms that is within Premier FX. We need to have the courage to recognise that things have gone wrong. We do not need to make it in any way personal—this is a systemic issue. We will only start addressing these problems if we move away from short-term, tactical, reactive responses to long-term, strategic, proactive responses. I and the many members of our organisation would be very pleased if Parliament were to decide to properly investigate the many other catastrophic regulatory failures that have taken place.

[The Chair]

I ask witnesses to make sure that you are on mute if you are not speaking, and to keep answers short. Mr Grant, is this your final question?

[Peter Grant]

Q Yes. I just want to ask Mr Bishop if he has anything to add.

Mark Bishop: Yes. I strongly endorse what my colleague Andy Agathangelou said and I would like to add a little more information.

As far as I am concerned, the debate is about what happens when the regulator fails in its statutory duty to protect consumers. There are a number of options. The consumers can bear the costs, and that is tough; the consumers can be compensated by the Treasury; or they can be compensated by the FCA.

At the moment, there is no effective route to be compensated by the FCA, because in the Financial Services Act 2012, Parliament—rightly or wrongly—gave the FCA broad exemption from civil liability. It is almost impossible to sue. There is a very narrow carve-out on breach of human rights and acting in bad faith. At some point, someone is going to try the human rights angle, but I do not think anyone has successfully done so yet, because the costs are high and the FCA effectively has unlimited resources.

Knowing that it gave that exemption, Parliament also created a complaints scheme. Unfortunately, it then allowed the FCA to specify the complaints scheme. As a result, the FCA has determined that it cannot give out material levels of redress and it cannot give out any redress where there is an allegation that the regulator has failed in its statutory duty—it has been negligent or it has just not done the job properly. In effect, there is no route for consumers to receive redress. There is a need to create one.

There are big ways of doing that, such as having a royal commission, as happened in Australia. There are also simple, pragmatic, quick ways of doing it. Modifying the Bill so that it could deal with other legacy cases of regulatory failure would be a very sensible way to do it.

[The Chair]

I call Matt Rodda.

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

Peter Grant Excerpts

Committee stage
Tuesday 15th June 2021 Public Bill Committees

[Mr McFadden]

[Peter Grant (Glenrothes) (SNP)]

[Gareth Thomas]

[Peter Grant]

[Gareth Thomas]

[John Glen]

[Peter Grant]

[John Glen]

--- Later in debate ---

[Mr McFadden]

[Peter Grant]

[Mr McFadden]

--- Later in debate ---

[Mr McFadden]

[Peter Grant]

[Gareth Thomas]

--- Later in debate ---

[The Chair]

[Peter Grant]

[John Glen]

--- Later in debate ---

The Government have a duty to make sure that not-for-profit operators and other legitimate, law-abiding companies and mutuals, as my hon. Friend the Member for Harrow West has said, are not unfairly affected or carrying the burden of responding to the need to pay out compensation for scams. The savers and pensioners who have invested in that way should not be forced to pay higher charges as a result. I appreciate the pressure on time and hope that the Government will consider the amendment in great detail.

[Peter Grant]

[The Chair]

--- Later in debate ---

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

[Peter Grant]

[Guy Opperman]

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

Peter Grant Excerpts

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

[Peter Grant (Glenrothes) (SNP)]

I beg to move amendment 1, page 1, line 18, at end insert—

“(5) Within six months of this Act coming into force, the Secretary of State must lay before Parliament a report that assesses the impact of the payment of compensation to the customers of London Capital & Finance plc under this section, and in the light of that assessment, sets out the following—

(a) an assessment of the regulatory failures that gave rise to the need to compensate the customers of London Capital & Finance plc;

(b) measures the Government is taking to prevent such regulatory failures in the future;

(c) the reasons why the Government is providing compensation to the customers of London Capital & Finance plc but not the customers of other failed investment firms;

(d) criteria for when the Government should be expected to provide compensation following the collapse of investment firms; and

(e) the reasons for the capping of compensation payments under this section at 80% of what customers of London Capital & Finance would have been entitled to under the Financial Services Compensation Scheme.”

This amendment would require the Secretary of State to lay a report before Parliament that assesses the impact of the Government compensating the customers of London Capital & Finance plc, as well as broader issues relevant to the mis-selling scandal.

It is a pleasure to open this afternoon’s debate and to speak in favour of amendment 1, which is in my name. My amendment would require the Secretary of State to report back to Parliament within six months of the Bill coming into force, with an assessment of the impact of the payment of compensation to customers of LCF. Crucially, it would require the Secretary of State in that report to give an assessment of: the regulatory failures that made the London Capital & Finance compensation scheme necessary; the measures that the Government are taking to prevent such regulatory failures; the reasons why victims of other failed investment schemes, of which there are many, are not being compensated; the criteria for when the Government should be expected to provide compensation following the collapse of investment firms; and, finally, the reasons for the capping of compensation payments under this scheme at 80% of what customers of London Capital & Finance would have been entitled to under the Financial Services Compensation Scheme.

--- Later in debate ---

[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.

[Rehman Chishti (Gillingham and Rainham) (Con)]

On the allocation of compensation to different individuals, all victims are victims of this scam, but is the hon. Gentleman saying that priority should be given to those who have suffered the most when it comes to how the Government move forward in the allocation of compensation for their losses?

[Peter Grant]

We have to remember that we are dealing with a large number of people. It is not just one company with 50 or 60 people who are victims; there are thousands of victims that we know of and probably many more than we do not know of, and the amounts of money that they have lost individually are life-changing for them. Someone who has worked for 20 years on a Member of Parliament’s salary probably has £20,000 or £30,000 they can afford to lose; these people did not. The amounts they have lost individually are significant; the amount that has been stolen collectively, as I said, is almost certainly over £1 billion. If people stole £1 billion out of a bank vault, law enforcement would not stop until every last one of them was behind bars for a very long time, and would, if need be, change the rules to make sure that it could not happen again. We should regard the theft of £1 billion out of people’s pension funds just as seriously as the theft of £1 billion of gold bullion out of the back of a Securicor van. All this amendment asks is that the Government recognise that as an issue and start to put answers in place as to how they can protect our constituents from falling victim to these scams in future.

[Kevin Hollinrake]

It is a pleasure to have the opportunity to debate these issues. The amendment tabled by the hon. Member for Glenrothes (Peter Grant) is interesting. Certainly I very much support the broad principle of greater scrutiny of the FCA, but I cannot support his amendment because I do not feel that it is effective, not least regarding the issues I raised earlier. Some of the issues in it have already been addressed. The regulatory failures were clearly identified in the excellent Gloster report. The report also—this was welcome—named individuals in the FCA who had failed and who tried to have their names redacted from it and exempted from any specific criticism. One of the cultural issues with the FCA is the lack of individual accountability either in the organisation itself or the organisations they regulate.

In subsection (5)(e) the hon. Gentleman talks about why we are compensating only 80% of the losses of individuals who lost money in London Capital & Finance. That speaks to a broad principle. Many of the investments people make have to be subject to the principle of caveat emptor. Especially with a relatively high-risk investment, it is incumbent on any investor to look at it and judge the risk for themselves. Some form of protection from the regulator is also required, but the regulator cannot be all things to all people and cannot be in all places at once. I had a constituent come to me who had lost a significant amount of money in London Capital & Finance investments, and they were quite clear that they understood that as they were getting an 8% return, whereas in a bank they would probably get 0.5% maximum in interest, there was a risk involved in such investment. It is quite obvious to most people that that is the case, whether they are sophisticated or unsophisticated investors. The broad principle of an investor having to look at the investment and judge for themselves is very important.

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[Mr McFadden]

The right hon. Member raises a very fair point. If we pluck a sum of money out of the air, it could be a lot of money to one person and perhaps less to somebody else, depending on their wealth.

Let me return to the questions for the Minister arising from the amendment and the Bill. The second is the important question of where the decision to compensate the LCF investors leaves investors in other firms where regulatory failure is alleged. Where has the bar now been set for future compensation in the event of regulatory failure? The taxpayer cannot stand behind every investment loss. Some investors will make money and some will lose. That is in the nature of a market economy. However, the question of compensation arises when there is a clear regulatory failure, because that is considered to be a different matter. Having come up with this scheme, where do the Government now draw the line?

How can we be sure this will not happen again? There are two aspects to this question. The first is the role of the regulator. The FCA is going through a transformation programme designed to ensure that changes are made to prevent a similar thing from happening in the future.

[Peter Grant]

There is clearly a need to specify which kinds of investment losses might be compensated, and which ones will not be. Given that the Financial Conduct Authority has outlawed the targeting of mini-bonds at retail investors, is that a clear indication that something was fundamentally flawed with all selling of those bonds, whether it was done by LCF, Blackmore Bond, or anybody else?

[Mr McFadden]

The hon. Gentleman makes a fair point. On how we can be sure that this will not happen again, and the transformation programme, it is to be expected that companies would go through such a programme, given the damning nature of Dame Elizabeth’s findings. There is also, however—and this is not just about this specific case—understandable public scepticism when a scandal happens, people talk about lessons being learned, there are some changes to management, and the organisation moves on. How do we ensure that, while understandable, such public scepticism is not justified in this case because something different is happening, and that we will not end up back here, some time in the future, debating another investment scam that was not spotted and acted on in time?

The second aspect to the question of how we can ensure that this does not happen again relates to legislative protections. This scam was promoted by a lot of online advertising. The online safety Bill is coming up, and at the moment paid-for advertising is excluded from that. Why should that be the case? Surely the LCF case shows that paid-for advertising must be included. As the Minister will be aware, there is a growing coalition behind the argument that the online safety Bill must offer greater protection against financial scams and fraud, and that is bound to be a major issue as the Bill goes through the House.

That issue is important, because consumers are being targeted every day with adverts, text messages, emails, and phone calls geared either to obtaining their financial details, or promising get-rich-quick schemes. As covid has pushed more of our lives online, it is imperative that legislation keeps pace with the increased use of online scams that are designed to strip people of their money. It is becoming more and more difficult for consumers to ascertain the difference between a genuine approach and a scam approach. We in this House have a legislative duty to keep pace with what organised criminals are trying to do.

--- Later in debate ---

[Peter Grant]

The SNP will, as we indicated, support the Bill on Third Reading. I thank everyone who contributed to the debate today. There were a number of interesting contributions on my amendment. I understand why some people did not feel they could support it in its entirety, but I was very clear that across the House the intention behind the amendment has a considerable amount of support. I hope the Government will take that on board.

The second point that became clear during the debate is that the regulatory failures that allowed London Capital & Finance to happen were not restricted to the FCA. There were catastrophic failures in that organisation—that is now undeniable—but they were not the only failures. It was not only the FCA that let down investors in some of the other scam companies mentioned during consideration of the Bill. Companies House did not enforce the requirements to publish company information. It says it is not its job to verify that companies submit the names of directors, for example. If that is not the responsibility of Companies House, whose responsibility is it?

Nobody enforces the rules that require companies to publish their annual accounts and other critical information on time. Companies and directors can have literally dozens of yellow card suspensions against a company, but then they are lifted and nothing ever happens to them. Those requirements are essential if people with an interest in a company are to get an early warning that things are going wrong. If those requirements are not observed, companies can be sunk before anybody has a chance to do anything about it.

I appreciate that part of that issue is not within the remit of the Treasury, but I hope that what comes out of these proceedings is that colleagues on the Treasury Committee and the Business, Energy and Industrial Strategy Committee will have plenty of new material to work on. Clearly, this is a failing of such proportions and complexity it will take more than one piece of legislation to put it right. Ultimately, we are the regulators. Every time we say there has been a failure of regulation, what we are saying is that we, in this Parliament, have failed to protect our constituents properly, so there needs to be a degree of humility among all of us at the degree to which this Parliament and its machinery failed to predict, identify, prevent and remedy the scams that we have, sadly, spent so much time talking about over the past few months.

In supporting the Bill, I share the comments made towards the Treasury team. I have been very grateful for the positive way in which many of my comments have been taken by Ministers, which does not always happen with comments from Opposition Members. A big shout out to Salma and Scott in the SNP research team, who once again made me sound as if I knew what I was talking about, which is quite an achievement. A big thank you, also, to all those who gave evidence, either written or oral. Some were talking about things that had hurt them greatly. It was difficult for them to talk about that on the record. I hope the Bill has been made a bit better as a result of their contributions and I hope their contributions will have made sure that the issues raised, if they have not been dealt with in the Bill, will be dealt with by other legislation very soon.