I am no defender of everything the FCA does, quite the opposite in fact, but it does its very best to protect investors within its resources and with some measure of professionalism and success.
It is a mistake to think that taking Mr Bailey’s scalp will somehow improve financial regulation, quite the opposite in fact. Additionally, there is no evidence that Mr Bailey is incompetent in the role, however painful the LC&F fiasco is.
There are certainly many questions to be asked, but just as we cannot blame the police for every crime that’s committed we cannot expect the FCA to be responsible for every financial foul-up.
We should expect the FCA to act vigorously and tenaciously in protecting consumers but it’s hard to see how it can prevent all financial blunders when there are huge sums to be made and investors remain hugely ignorant of the risks they often face - a toxic mix at the best of times.
Yes the FCA could have acted quicker, yes it should have spotted the gap in regulation and the potential for an incendiary problem but all investments come with an element of risk, one being that your provider will go bust or sell you stuff that’s worthless.
I have often argued in the past that the FCA should be more of a gate-keeper but at the moment it simply isn’t. Unlike cigarettes and alcohol financial products do not come with any meaningful risk warning. Some bland words yes but a meaningful warning right at the top of every page? No.
This was inherently the problem at LC&F. It devised mini-bond products which many of its customers seemingly took to be regulated investments when they were, in fact, loans.
Despite handing over, in some cases, tens of thousands of pounds, many investors say they had little idea what they were investing in and did not understand the risks.
Why they handed over so much is a mystery to me but people remain very trusting when they believe they are dealing with a legitimate business and the promises of high returns are supremely alluring. That’s human nature.
A gap in regulation in this case, however devastating for the victims, is simply a gap in regulation, not a sign of Mr Bailey’s culpability. So will he resign. I don’t know. He may consider his position but I’d recommend he stays.
He’s proved to mainly be a decent pair of hands most of the time and the FCA has shown the ability and willingness to take on a wider remit to protect investors. For example it recently took on regulation of the previously very poorly regulated Claims Management Companies and also banned retail investors from investing in binary options. Both positive moves. A ban on investors putting money into similar mini-bonds may not be a bad idea.
Whatever the howls of protest, it is clear that the FSCS is seriously considering accepting claims from LC&F victims and that would not have happened so soon without FCA pressure (at least in my view). My guess is that investors will get some money back.
One thing is clear: there should be no repetition of the LC&F mistakes. The FCA must improve its early warning systems and act more swiftly in future to suspend products and companies that may be a danger to investors. With the enormous size and power of the financial sector that job will not be easy.
Kevin O’Donnell is editor of Financial Planning Today and a financial journalist with over 30 years of experience.