Bailey ‘angry’ at inquiry head’s criticisms over LCF scandal

Andrew Bailey, the Bank of England governor, said he was “angry” and “disturbed” by criticisms levelled at him by a former Court of Appeal judge over his response to her damning report into the £236m London Capital & Finance scandal.

Appearing before MPs on the Treasury select committee on Monday, Bailey, who was head of the Financial Conduct Authority in January 2019 when LCF collapsed, said he could not agree with some of suggestions made about his behaviour.

Last week, Dame Elizabeth Gloster, the former Court of Appeal judge who investigated the FCA’s handling of the scandal, told the committee Bailey had not provide “an adequate reason or excuse” for failures to protect the 11,000 investors who lost money. She also said he had showed a “lack of judgment” in trying to keep his name out of her report.

Bailey told MPs that Gloster was wrong and an apology that he issued following the report was being misrepresented. “I was disturbed at the suggestion that the nature of my apology would be taken to suggest there were no lessons learnt or that I wasn’t genuine in my apology to bondholders, which I certainly am . . . They should not suffer as a consequence of this.”

He also said that a comment in Gloster’s report indicating that he made legal representations to stop personal responsibility for FCA failings being attributed to him by name was misleading.

“It is not correct to present the points I made in my representations as in any sense an unconditional statement that I did not want my name mentioned . . . and particularly in the context of personal responsibility. That’s just not the case.”

Bailey explained that at the time his lawyers were responding to Gloster’s “very different” draft report — not the final published version — which talked about “personal culpability” as opposed to overall responsibility.

“I’m probably sounding quite angry now and I am,” he told MPs. “Because . . . the representation was never made in that context. I am perfectly happy with points on responsibility because I am responsible.” 

When asked by Mel Stride, the committee chair, if he had been given a chance to explain this distinction to Gloster, Bailey said: “No . . . that was not part of the process . . . I am angry about this because you quite reasonably have regarded it as a criticism [of me].”

LCF collapsed into administration two years ago having marketed high-risk, unregulated mini-bond investments direct to private investors for several years. Bailey was head of the FCA from 2016 to 2020.

However, he told MPs that he did not personally have knowledge of the problems at LCF until the point it went into administration “My personal involvement did not begin until then,” he said. 

Bailey acknowledged that a key problem had been a failure to act on phone calls to the FCA’s call centre raising concerns about LCF. But he said this was an operational flaw he inherited when taking up the CEO role. “The contact centre in my time was receiving 200,000 calls a year and there was no system for extracting information from those 200,000 calls . . . the red flags were buried in those 200,000 calls.” 

He rejected Gloster’s claims that his reforms of the FCA took too long and prioritised the wrong areas. “I fundamentally disagree on the question of the substance of change needed. As she said: ‘the machine was broken’.” 

Gloster’s report concluded that the FCA had granted LCF “inappropriate” permissions and did not adequately supervise the firm. In addition, the regulator was found “wholly deficient” in handling warnings about LCF from third parties.