HANSARD
Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill
- Consideration of Bill, not amended in the Public Bill Committee
- Clause 1
- Compensation payments to customers of London Capital & Finance PLC
- 1:59 pm
- 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.
- 2:00 pm
- The amendment does not seek to change the actual scheme at all, and we will support the Bill on Third Reading as we have supported it at other stages, but it does seek to address the single biggest problem with the Bill, which is that it does not go nearly far enough. The amendment echoes amendment 7 in Committee and its intention is similar to amendment 1 in Committee, which was tabled by the Opposition Front Bench. Neither of those amendments was pushed to a vote in Committee, but both raised issues of significant importance to thousands of people, who between them have almost certainly lost more than £1 billion through investment scams and whose plight the Bill currently fails to address.
- My amendment will not bring the investors justice, because the Bill was drafted in such a way that an amendment that sought to bring justice for them would have been inadmissible, but it would offer the first small step towards recognising that the £1 billion scandal of pension investment mis-selling and the catalogue of regulatory failures that allowed that scandal to continue for so long have left thousands of hard-working people potentially destitute because their retirement plans have been stolen from them. The Government have yet to offer a credible reason for rejecting my amendment, so, given the importance of the issues that it seeks to address, I do intend to test the will of the House on this question at the end of the debate.
- There has been virtually no opposition to the Bill from MPs or those who have given evidence to the Bill Committee. There has, however, been strong criticism across the board about what the Bill does not do—that is, it does not do nearly enough. It places no obligation on anyone to sort out the mess created not only by London Capital & Finance, but by other scams—such as Premier FX, Blackmore Bond, Henley, Connaught and many others—that were allowed to happen. It does nothing to explain how Companies House, the Financial Conduct Authority, company auditors and in some cases the police either did not have the powers they needed, or in some cases failed miserably to use the powers they had, to prevent these scams from happening and to protect innocent, unsuspecting investors.
- In my earlier contributions on the Bill, I have made frequent references to the collapse of Blackmore Bond for the likely loss of £46 million of other people’s pension funds. I will not repeat everything that I have said before, but for the benefit of Members who have not had a chance to catch up with the full proceedings, let me just say that the similarities between London Capital & Finance and Blackmore Bond are many and they are striking. According to Library reports, the owners and directors of the entire Blackmore Bond group of companies made about £800,000 signing up investors for LCF. Blackmore Bond then used Surge Financial—a company that is now under criminal investigation as part of the fallout of the LCF investigation—to drum up leads for its mis-selling of mini bonds.
- In previous stages, the Government have claimed that the exact details of London Capital & Finance’s mis-selling and ultimate collapse were unique, and that that is why there is a compensation scheme for its victims but not for the victims of other schemes.
- The hon. Gentleman is making some good points and has been very vocal in this Chamber to draw attention to the bonds of a similar nature that were also mis-sold. However is not subsection (5)(a) of his amendment, which would require,“an assessment of the regulatory failures”already covered by the Gloster report? Is not that exactly what that does? Has the purpose of his amendment not already been achieved through that in-depth and welcome report?
- 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.
- 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?
- 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.
- 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?
- 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.
- 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.