FCA reviews regulatory coverage following collapse of London Capital & Finance

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Andrew Bailey is due to take over as governor of the Bank of England in March

The City watchdog has launched a report into how firms are regulated following the collapse of mini-bond lender London Capital & Finance.

In its first annual Perimeter Report the Financial Conduct Authority (FCA) said that firms “on the edges” of it’s regulatory coverage have “recently caused serious harm to consumers.”

Read more: HM Treasury launches probe into FCA regulation of London Capital & Finance

London Capital & Finance was an FCA authorised firm, however, issuing mini-bonds was not considered to be a regulated activity.

Customers were therefore not eligible for Financial Services Compensation Scheme after the company failed.

“The mini-bonds market has changed over recent years, with more complex minibonds being issued and marketed to retail investors,” the regulator said.

“Issuers of these more complex products have often been able to rely on the same exclusion as ordinary commercial companies to issue their securities without the need for authorisation.

“In a low-interest environment, these high-risk investments, offering the potential of higher returns on capital, have increasingly been offered as retail investments.

Following the collapse of London Capital & Finance the FCA also called for an independent investigation into “whether the existing regulatory system adequately protects retail purchasers of mini-bonds

London Capital & Finance went into administration in January owing £236m to more than 11,000 investors.

Read more: London Capital & Finance investors rage against FCA

FCA chief executive Andrew Bailey said: “We appreciate that the current perimeter is complicated.

“The boundary between which firms and activities do or don’t require regulation, is being constantly tested.

“The recent behaviour of some firms operating around the perimeter has caused serious consumer harm and reduced trust in regulated financial services markets.

“We will publish this report annually from now on, in order to highlight issues around the perimeter.”