MPs demand answers from Bank of England governor on LCF ‘contradictions’

More pressure has been heaped on Bank of England governor Andrew Bailey by parliamentarians after they demanded he clarify “apparent contradictions” in testimony he gave over a £236m retail-investment scandal.

The committee’s intervention follows an unusual war of words between Bailey and a former Court of Appeal judge appointed to investigate the 2019 collapse of London Capital & Finance, which pushed high-risk mini bonds on pensioners and first-time investors. Bailey was head of the Financial Conduct Authority at the time.

The Treasury select committee on Tuesday insisted Bailey clarify whether he pressed Dame Elizabeth Gloster to remove his name when it came to her official findings on who at the watchdog was responsible for regulatory failings over the collapse of LCF, which was regulated by the FCA although the products it sold were not.

During a bruising hearing last month, Bailey told the committee he was “angry” that Gloster had suggested he had made legal representations to stop personal responsibility for FCA failings being attributed to him by name. Bailey insisted his lawyer had been responding to Gloster’s “very different” draft report — not the final version — which talked about “personal culpability” as opposed to overall responsibility.

Gloster took the unusual step of writing to the committee that day to dispute Bailey’s explanation. She also took issue with Bailey attributing to her the description of the FCA as a “broken machine” that he had inherited when he was parachuted into the organisation in 2016. She said that in fact this was his phrase that she had quoted in her December report, which found the FCA did not effectively supervise LCF.

The committee on Tuesday also demanded Bailey detail exactly what lessons he had learnt over the affair, which prompted both a criminal and regulatory investigation as well as Gloster’s own inquiry into FCA failings.

“You will be aware that Dame Elizabeth wrote to the committee . . . disagreeing with your position on the issue,” wrote Mel Stride, who chairs the select committee. “She provided relevant extracts from your representations in which you appear to have asked that the investigation should delete the reference to ‘responsibility’ resting with specific identified/identifiable individuals.”

The spat risks extending the shadow cast by the LCF affair over Bailey, who is due to mark his first anniversary as BoE governor later this month. The issue of responsibility and culpability is a sensitive one because the FCA itself has a policy of demanding senior managers at regulated firms take responsibility for failings on their watch.

The LCF scandal cast the FCA in a bad light but also left the UK’s financial compensation scheme and the Treasury with questions to answer, with thousands of customers yet to be compensated.

The BoE declined to comment on Tuesday. It previously said about Bailey that “at no point, was it his intention to imply he did not take full responsibility” and that “Dame Elizabeth and he disagree on points of process and some of her conclusions but he fully respect[s] her independence”.

The FCA declined to comment.

One regulatory lawyer questioned the wisdom of Bailey’s stance at the select committee: “It’s mad to go to war with Liz Gloster. You will lose.”