The independent review into the failure of the mini-bond provider London Capital & Finance and the City regulator’s role in its collapse will not be able to compel the watchdog’s staff to attend interviews, it has emerged. 

LC&F, which was authorised by the Financial Conduct Authority (FCA), sold unregulated, high risk mini-bonds to 11,625 investors who face losses of £237m. The FCA intervened five times before LC&F finally collapsed in January after the regulator forced it to withdraw misleading marketing. The Serious Fraud Office is also investigating.

In May, Dame Elizabeth Gloster, a former Court of Appeal Judge, was asked by the FCA to investigate LC&F’s failure and the FCA’s ‘actions, policies and approach’ when regulating it. Details of the protocol setting out the ground rules of her inquiry were published last week.

The FCA said it would ‘endeavour’ to secure the attendance of any current or former employees but said it was not compulsory under statutory powers.

The judge is required to set out a broad outline of the topics she wants to discuss at those meetings and the documents she will be relying on. The individual will be given a transcript, which the FCA stressed would not be given to the authority.

The protocol says it is FCA policy for employees at director or above to be held publicly accountable for the authority’s performance. Employees below that level have a ‘legitimate expectation’ that they will not be publicly identified except in exceptional circumstances.

Individuals who are going to be criticised must be given a ‘reasonable opportunity’ to make representations before the report is finalised. If material is subject to FCA’s legal privilege, the authority says it will not withhold it but parts of the material may need to be redacted first.

Dame Elizabeth Gloster, who was formally appointed this month (July) has said she aims to engage with bondholders, professional organisations and other interested parties for her investigation.

She said: ‘Many people have been badly affected by the failure of LC&F. There is rightly a great deal of interest in what happened at LC&F and the role of the FCA.’

The FCA has been under sustained criticism this year over its regulation following the suspension of the Woodford Fund, the collapse of the peer-to-peer lender Lendy and a series of pension scams. These all raise issues for investors facing losses because compensation depends on where the regulatory boundary lies.