The investigation is complete and the report has been published here.

The investigation is tasked to consider issues connected with the regulation by the Financial Conduct Authority (FCA) of London Capital & Finance Plc (LCF) in the period 1 April 2014 to 30 January 2019.

Background to the investigation

On 30 January 2019, LCF entered administration following regulatory action by the FCA in December 2018.

According to the March 2019 report issued by LCF’s administrators, as at December 2018, LCF had, however, already issued some 16,706 LCF mini-bond/ISA products, totalling £237,207,497, across 11,625 investors. On 22 May 2019, following a request from the FCA’s Board, the Economic Secretary to the Treasury directed the FCA to set up this independent investigation into the circumstances surrounding the collapse of LCF. At the same time, the Treasury announced its approval of the proposed appointment of Dame Elizabeth Gloster to lead the investigation.

The independent investigation will consider the FCA’s actions, policies and approach when regulating LCF. Please find more information about the remit of the investigation here

Bondholders and others affected by the role of the FCA and the collapse of LCF can submit information to the investigation here.

17th December 2020: Update on the investigation 

Report into the Financial Conduct Authority’s regulation of London Capital & Finance published

HM Treasury has today published Dame Elizabeth Gloster’s report into the Financial Conduct Authority’s (FCA) regulation of London Capital & Finance (LCF). It is available to view here.

HM Treasury has also published the FCA’s response to Dame Elizabeth’s report and that response is available to view here.

Please find below a short summary of the findings in Dame Elizabeth’s report:

The primary question that the Investigation was asked to focus on by the Direction signed by the Economic Secretary to the Treasury on 22 May 2019 was “whether the FCA discharged its functions in respect of LCF in a manner which enabled it to effectively fulfil its statutory objectives”. The Investigation has concluded that the FCA did not discharge its functions in respect of LCF in a manner which enabled it effectively to fulfil its statutory objectives. In all the circumstances, the Investigation concludes that the Bondholders, whatever their individual personal circumstances, were entitled to expect, and receive, more protection from the regulatory regime in relation to an FCA-authorised firm (such as LCF) than that which, in fact, was delivered by the FCA.

Answers to questions posed in the Direction

The Direction also asked the Investigation to consider various questions regarding the FCA’s regulation of LCF during the Relevant Period (1 April 2014 to 30 January 2019). The Investigation reached the following conclusions in respect of these questions:

  • Were the permissions granted to LCF appropriate for its business activities? The Investigation concluded that the permissions granted to LCF were not appropriate for the business that it carried on.
  • Did the FCA adequately supervise LCF’s compliance with its rules and policies? The Investigation concluded that the FCA did not adequately supervise LCF’s compliance with the FCA’s rules and policies.
  • FCA’s handling of information from third parties regarding LCF. The FCA’s handling of information from third parties regarding LCF was wholly deficient. This was an egregious example of the FCA’s failure to fulfil its statutory objectives in respect of the regulation of LCF.
  • Did the FCA have in place appropriate rules and policies relating to the communication of financial promotions by LCF? The FCA had appropriate rules to regulate the communication of financial promotions by LCF. The FCA also had sufficient power under the relevant legislation to monitor LCF’s financial promotions and to intervene if there was a breach. However, the FCA did not have in place appropriate policies.

Significant gaps and weaknesses in the FCA’s policies and practices

The root causes of the FCA's failure to regulate LCF appropriately were significant gaps and weaknesses in the policies and practices implemented by the FCA to analyse the business activities of regulated firms. These failings can be grouped into three broad categories:

  • First, the FCA's approach to its regulatory perimeter was unduly limited. In general, the FCA did not sufficiently encourage its staff to look outside the perimeter when dealing with FCA-authorised firms such as LCF. This made it possible for LCF to use its authorised status to promote risky, and potentially fraudulent, non-regulated investment products to unsophisticated retail investors. LCF was a regulated firm, but the majority (if not all) of its revenue was generated from non-regulated activities. The Investigation has concluded that LCF’s bond business did not constitute “regulated activity”. As a result of the FCA’s approach to the perimeter, this core aspect of LCF’s business was not subject to sufficient scrutiny. The FCA’s flawed approach to the perimeter resulted in LCF being able to use its FCA-regulated status to present an unjustified imprimatur of respectability to the market, even in relation to its non-regulated bond business.
  • Second, the FCA failed to consider LCF's business holistically. Instead, FCA staff analysed LCF’s breaches as though they were isolated issues. In particular, they did not consider whether, and if so how, these issues were indicative of broader concerns with LCF’s business. For example, LCF had repeatedly breached the FCA’s financial promotion rules by using its FCA-authorised status to attract investors to its non-regulated bond business. The FCA’s Financial Promotions Team had raised concerns regarding LCF’s financial promotions in correspondence on six occasions. Nevertheless, these breaches did not result in a referral to the Supervision or Enforcement Divisions for further review. As a result, the FCA did not consider whether LCF’s breaches might be symptomatic of a more serious problem. In particular, it failed to question, in any meaningful way, whether LCF might have obtained, or used, its FCA-authorised status in order to attract investors to its unregulated bond business.
  • Third, FCA staff who reviewed materials submitted by LCF had not been trained sufficiently to analyse a firm's financial information to detect indicators of fraud or other serious irregularity.  This weakness permeated various aspects of the FCA’s regulation of LCF during the Relevant Period.

As a cumulative result of these failures, the FCA did not appreciate the true nature of LCF's business or the risks that it posed to consumers. Neither did the FCA appreciate the significance of an ever-growing number of red flags, which were indicative of serious irregularities in LCF's business. This occurred at a time when LCF’s unregulated bond business was growing at a rapid pace and substantial funds were being invested by Bondholders.

Individual responsibility of the FCA’s senior management

The report makes certain findings of individual responsibility. For the avoidance of doubt, the findings of individual responsibility in the report are not conclusions about the personal culpability of any individuals or groups of individuals. In particular, the fact that the Investigation has identified an individual as being responsible for one aspect of the FCA’s deficient regulation of LCF does not necessarily mean that the individual had specific knowledge of the relevant problem(s), or that the individual failed to take reasonable steps to address them. The Investigation has not made findings about personal culpability (as opposed to responsibility) because it has not found it necessary to do so in order to answer the questions put to it. To have done so would have require an analysis of detailed evidence relating to the specific actions or omissions by relevant individuals, the circumstances in which they were taken and the extent of their knowledge at the relevant time. The Investigation has not considered these matters. It follows that the Investigation has also not made findings about whether there was any causal connection between the actions or omissions of specific individuals within the FCA and losses suffered by Bondholders.

Key examples of the findings of responsibility in the report are:

  • Paragraph 1.7(d) of Chapter 6 (The FCA’s approach to the Perimeter) states: “Section 6 explains that, despite the awareness of the issues described in paragraph 1.5 above, the FCA’s Senior Management failed to implement an appropriate level of awareness at lower levels of the organisation where LCF was actually dealt with. The FCA’s failures of regulation in respect of LCF, which were associated with its approach to the Perimeter, accordingly occurred nonetheless. Responsibility for this failure rests with the CEO and [the FCA’s Executive Committee].
  • Paragraph 6.7 of Chapter 8 (The “Delivering Effective Supervision” and “Delivering Effective Authorisations” Programmes) states: “The Investigation has nonetheless concluded that the Board was unjustifiably relaxed in its oversight of the timing and delivery of the [Delivering Effective Supervision Programme] relating to the supervision of flexible portfolio firms.
  • Paragraph 6.13(b) of Chapter 9 (Appropriateness of LCF’s permissions) states: “The FCA’s process for risk assessing applications for Variation of Permission focused too much on the risks posed by LCF’s regulated activity, resulting in the significant issues connected with LCF’s unregulated activity not being appreciated and acted upon. Responsibility for this weakness lies with: (i) the Executive Director of [Supervision – Retail and Authorisations] given his remit at the time included being “[r]esponsible for establishing and overseeing processes for the authorisation of all firms, transactions and individuals”; and (ii) [the FCA’s Executive Committee] as a whole given its role in setting the FCA’s attitude to the Perimeter.
  • Paragraph 2.13 of Chapter 12 (Information provided by third parties) states: “However, responsibility for [failures in respect of certain Contact Centre policies regarding the handling of information received from third parties] is not solely attributable to the FCA’s attitude to its Perimeter. Responsibility also rests with management of the Supervision Division, in particular with those elements of management responsible for the Contact Centre...
  • Paragraph 2.22 & 2.24 of Chapter 12 (Information provided by third parties): “…there was no policy which required the FCA’s supervision staff to interrogate a firm’s financial information following an allegation of fraud or serious irregularity being made against a firm.” “Responsibility for these policy failings rests with the Senior Management of the Supervision Division.


In the circumstances, the Investigation makes 13 recommendations which are split into two categories: (i) nine recommendations targeted at the FCA’s policies and practices; and (ii) four recommendations focused on the regulatory regime. As you will see from the FCA’s response to Dame Elizabeth’s report, the FCA accepts and will implement each of the nine recommendations targeted at its policies and practices. The FCA’s response also confirms that the FCA will work with Treasury and wider Government (as appropriate) in relation to the four recommendations focused on the regulatory regime.

Key chapters of the report

Although the Investigation considers that all 14 chapters contain important and relevant information and findings, the key chapters for the purposes of obtaining a summary of the relevant facts, issues and conclusions are:

  • Chapter 1 provides an introduction and the background to the report.
  • Chapter 2 is an executive summary of the Investigation’s conclusions and recommendations.
  • Chapter 3 provides an overview of key events related to LCF during the Relevant Period.
  • Chapter 14 outlines the recommendations made by the Investigation.