Britain needs better protections for investors
Two years after the suspension of Neil Woodford’s flagship fund, more than 300,000 investors who risk losing around £ 1 billion from its liquidation are still awaiting responses from the British financial regulator.
The Financial Conduct Authority launched an enforcement investigation in June 2019 after the £ 3.7bn Woodford Equity Income Fund was suspended, but admitted to MPs last week that it was unlikely to end before the end of this year, without “specific deadline” for its result.
Prolonged investigations into consumer scandals have unfortunately become the hallmark of the FCA. Two years after the collapse of LCF, where more than 11,000 investors in unregulated mini-bonds lost £ 237million, taxpayers are funding a compensation scheme. Such long delays are unacceptable and aggravate the initial problems.
It would be wrong to prejudge the results of the FCA’s investigation into the Woodford fund, but investors have had to wait too long for answers. Woodford is eager to move on. It would certainly be inappropriate for the fund manager to seek any form of regulatory clearance for their new investment firm until the formal FCA process is complete, regardless of their commitment to working only with investors. professionals in the future.
The FCA must ask itself serious questions. Financial regulators tend to be reactive rather than proactive, concerned with managing the latest crisis rather than finding the next. FCA was never created with consumer protection at its heart. A change in its mandate is long overdue, especially after the “retirement freedoms” introduced by the government in 2015 gave unsuspecting investors the opportunity to access life-changing sums in their retirement funds, thus increasing the potential for harm.
The regulator must also keep abreast of the progress of digital innovation relative to financial regulation, given the wave of retail investors who have started trading in stocks, contracts for difference and cryptocurrencies. online under lockdown. A common criticism of his current approach is that it is too rule-based rather than results-based.
Recent problems in the UK retail investment market have been caused by FCA-regulated firms selling unregulated investment products – a confusing distinction for consumers who have been falsely reassured about the level. risk they take.
The regulator’s communications with consumers and whistleblowers were also lacking. In February, former FCA chief Andrew Bailey admitted to MPs that when he took office, “there was no system” to extract information or “red flags” from 200,000 calls. per year that the watchdog contact center receives.
With financial fraud on the rise during the pandemic, FCA’s ‘warning list’ of known investment scams has never been more necessary, but surveys suggest few consumers have even heard of it. speak.
There is evidence that the regulator recognizes these shortcomings. Nikhil Rathi, its new CEO, is chairing an internal “transformation agenda”. He is consulting on new powers, including a “consumer principle” that would set higher expectations for financial institutions’ duty of care to their customers.
The FCA says it wants to see businesses “put themselves in their customers’ shoes,” asking, “Would I be happy to be treated the way my company treats its customers?” As hundreds of thousands of private investors out of pocket await his decision on the Woodford debacle, he would do well to ask himself the same questions.