BOE’s Bailey ‘Angry’ at His Portrayal in Mini-Bond Scandal
(Bloomberg) -- Bank of England Governor Andrew Bailey repeatedly expressed anger at how he was portrayed in a judge’s report into a financial scandal that occurred while he was running Britain’s market regulator.
Lawmakers called Bailey to testify Monday after a 494-page report into the Financial Conduct Authority’s oversight by Elizabeth Gloster. Her report, published in December, said Bailey asked investigators “to delete references to ‘responsibility’ resting with specific identified/identifiable individuals” for the FCA’s failures.
The so-called mini-bond scandal, which involved firms including the now-collapsed London Capital & Finance Plc, cost retail investors more than $300 million and has haunted Bailey since before he was named to run the central bank. Bailey said that he accepts responsibility for the FCA’s record, but drew a distinction between “culpability” and “responsibility” that he said was “ambiguous” in the early versions of Gloster’s report.
“Dame Elizabeth revised the text to focus on responsibility,” and “explained why she didn’t make a finding on culpability in the end,” Bailey said in response to questions from Treasury Committee Chairman Mel Stride, a Conservative Party lawmaker. “I’m probably sounding quite angry now, and I am.”
Bailey has been leading the central bank’s efforts to combat the pandemic since last March and is overseeing unprecedented monetary stimulus to support the economy.
Read more on London Capital & Finance’s collapse
“I do not understand why we had to have this paragraph,” Bailey said of some of the language Gloster used in her report, describing a back-and-forth that involved his lawyer and the former judge. Bailey said he decided against lobbying again to have some of the language changed, saying it could “make it worse.”
On Tuesday, Gloster issued a response that disputed Bailey’s account.
“To the extent that Mr Bailey’s evidence was that his representations to me were limited to requesting a distinction between personal culpability and responsibility (which was my understanding of his evidence today), I must disagree,” Gloster said in her letter. “I also reject his suggestion that there has been a ‘fundamental misunderstanding’ on this issue,” she said.
Gloster’s report detailed a sluggish investigative culture with inadequate training of staff to root out fraud. A week ago, in testimony to the same committee, Gloster said it was for the FCA, the Bank of England and the U.K. Treasury to determine any consequences Bailey and other senior FCA executives named in the report should face as a result.
In his Monday testimony, Bailey said his tenure at the FCA was focused on revamping an agency with a “troubled legacy” whose problems included problems processing and making use of information from complaints sent to its call centers.
“I didn’t know about LCF as a firm until actually pretty much the point at which it was closed down by the FCA,” Bailey said. “My personal involvement didn’t begin until then.”
“I would have wished that we could have saved the bondholders the suffering that they’ve had,” Bailey also said.
©2021 Bloomberg L.P.