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.

--- Later in debate ---

[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.