The Treasury Committee has called for a change in the Financial Conduct Authority’s (FCA) culture and approach to fraud in its report into the watchdog’s regulation of London Capital and Finance (LCF).

The report, headed by Dame Elizabeth Gloster, stated that the FCA had fallen short of its duty to protect customers from fraud, attributing this to “a culture that saw fraud as principally a matter for the police” and the organisation’s “lack of enthusiasm to look beyond the perimeter”.

As such, the report stated that the FCA should “develop a strategy for how it will approach fraud risks that are outside the perimeter of regulation but involve authorised firms”, stating that this strategy should be outlined in its next perimeter report.

Additionally, the committee said it welcomed the FCA’s transformation programme but called for the board to set itself an end date and improvement milestones, citing concerns that the FCA had already undergone structural and operational changes since its inception.

The committee also warned that there were doubts about whether the FCA board had adhered to the standards it sought to impose on others and warned that an over-reliance on collective responsibility could deny visible accountability and could lessen confidence in the organisation.

LCF, an issuer of high return unregulated investments known as mini bonds, was directed by the FCA to withdraw promotional material in December 2018 as it was deemed to be “misleading”, with the company entering administration the next month following further regulatory action.

A total of £237m had been invested with the company by 11,625 people at the point of its collapse, with administrators Smith & Williamson estimating in March 2019 that bondholders might receive returns just 20 per cent of their total original investment.

Treasury Committee chair, Mel Stride MP, said: “The collapse of LCF is one of the largest conduct regulatory failures in decades. Dame Elizabeth Gloster identified a litany of failings at the FCA regarding its regulation of LCF, and highlighted a range of changes needed at the FCA under its new leadership.

“The Treasury Committee has made some further recommendations for the regulator and the government to help prevent another LCF.”

The committee also said it was "disappointed" that measures to address fraud via online advertising were not included in the Online Safety Bill, urging the government to intervene "urgently" to include such measures.

An FCA spokesperson said: “We welcome the committee’s report and will be providing a formal response in due course. As we have said we are profoundly sorry for the mistakes we have made over LCF and are committed to implementing the recommendations of The Gloster Report which are progressing at pace.

“The FCA has embarked on a wide-ranging transformation programme to build a data-led regulator able to make fast and effective decisions and we are providing the committee with updates on our progress.

“We agree with the recommendation that fraud via online advertising should be included in the Online Safety Bill, as online platforms are now the single biggest channel of financial scams and fraud.”

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