By Huw Jones
LONDON (Reuters) - The collapse of London Capital & Finance showed how Britain's Financial Conduct Authority appeared unable to meet standards of accountability it imposes on firms it regulates, a parliamentary report said on Thursday.
The report from the Treasury Select Committee said the FCA put an "over-reliance" on its collective responsibility for the investment firm's failure in early 2019, rather than on accountability of senior officials at the regulator.
The FCA requires senior managers at regulated firms to be directly accountable for their actions to make it easier to punish individuals, a landmark reform that came out of the financial crisis.
"The FCA Board should reflect on whether it has, in this case, met the standards which it seeks to impose upon others. We believe that there are doubts as to whether it has," the report said.
LCF left 11,625 investors facing losses of up to 237 million pounds ($331.52 million) on the mini-bonds they bought. It was licensed by the FCA but the mini-bonds were unregulated, making investors ineligible under the UK's financial compensation scheme.
In a rare move, the government will pay investors about 120 million pounds in compensation for what the report called "one of the largest conduct regulatory failures of the last three decades".
An independent report in December by Elizabeth Gloster, a former judge, blamed the FCA's executive committee, then headed by Andrew Bailey, now the governor of the Bank of England.
She also singled out two other board members, Megan Butler and Jonathan Davidson, and all three asked her not to name them in her report.
Davidson has since left, but Butler remains in a new executive role in charge of a big revamp to improve internal culture.
Lawmakers said the FCA was "wrong" not to have recruited more widely for the job, leaving people to feel that "a buck that does not stop with an individual stops nowhere".
The FCA said on Thursday it was profoundly sorry for the mistakes it has made over LCF.
The report said the FCA should set milestones and deadlines for completing its lengthy transformation into what the watchdog described on Thursday as a data-led regulator able to make fast and effective decisions.
"The FCA should provide us with an update on its resolution of LCF complaints by 30 September 2021," the report said.
The report called on the government to include measures to tackle fraud via online advertising in its Online Safety Bill to prevent further harm to customers. The finance ministry said it has been a very difficult time for LCF bondholders, and it will consider the lawmakers' conclusions.
The FCA should be given the power to recommend changes to the 'perimeter' of regulation formally to the finance ministry to crack down on unregulated activity harming consumers, the report said.
It concluded that Bailey, who had challenged some of Gloster's comments, had not misled the parliamentary committee's hearing into LCF. The Bank of England had no comment on the TSC report.
($1 = 0.7149 pounds)