The UK financial watchdog “did not effectively supervise and regulate” the mini-bond issuer London Capital & Finance, an independent review into its 2019 collapse has found.

The long-awaited report into the scandal, in which almost 12,000 investors lost £236m, found that the Financial Conduct Authority “did not discharge its functions in respect of LCF in a manner which enabled it effectively to fulfil its statutory objectives.”

The findings will raise fresh questions about the conduct of Andrew Bailey, the governor of the Bank of England who was chief executive of the FCA at the time of the LCF collapse. The report, published on Thursday, said the investigation had not addressed the issue of “personal culpability”.

The investigation, led by former judge Elizabeth Gloster, concluded that victims “were entitled to expect, and receive, more protection.”

Mr Bailey’s move to the central bank earlier this year was opposed by consumer campaigners, including former anti-Brexit activist Gina Miller, after a series of company failures had raised questions about the effectiveness of the FCA during his tenure.

He apologised to LCF bondholders in response to the report. “When I was asked to lead the FCA in July 2016 it was clear that a substantial reform programme to the supervision of many of its 60,000 firms was essential . . . I am sorry those changes did not come in time for LCF bondholders,” Mr Bailey said.

But campaigners criticised Mr Bailey for refusing to take further responsibility. Members of the Transparency Task Force, a lobby group pushing for regulatory reform, pointed out that in his own representations to the Gloster review, Mr Bailey included a demand “to delete references to ‘responsibility’ resting with specific identified/identifiable individuals”.

Ms Miller noted that the FCA had introduced a specific senior managers’ regime to hold individual bankers and financial services employees to account for their mistakes. “There is no other organisation where you would not have senior management responsibility,” she said.

But the Gloster report found that some of the problems in the FCA’s supervision division predated Mr Bailey. The FCA said that discretionary pay awards for executives involved in the LCF case, which had been deferred, would not be paid.

LCF, which went into administration in January 2019, had marketed high-risk, unregulated mini-bond investments direct to private investors. The report said the FCA had granted LCF “inappropriate” permissions and did not adequately supervise the firm. The watchdog was also “wholly deficient” in handling warnings about LCF from third parties, it found.

The regulator said it had accepted the nine recommendations by Dame Elizabeth made to address its failings, including training staff to recognise potential fraud and irregularities and acting on information from consumers and whistleblowers.

The report also recommended that ministers should act to address “gaps” in regulation and prevent “harmful” online advertising.

Treasury minister John Glen promised to “take forward the report’s recommendations to ensure our regulatory system maintains the trust of the consumers it is there to protect.” The government also announced it would set up a compensation scheme to consider one-off payouts to former LCF investors.

Most of the 11,600 investors affected by the collapse had been unable to claim redress through the Financial Services Compensation Scheme because the FCA did not regulate the bonds — only covering their marketing and provision of advice.

Instead, bondholders hoping to recoup their losses have had to rely on ongoing legal action by LCF’s administrators or pursue separate cases through the courts and via the FCA’s Complaints Scheme.

Thomas Donegan, a partner at law firm Shearman & Sterling who represents some LCF bondholders, welcomed the promise of a compensation scheme to address what he called “one of the most serious cases of financial wrongdoing this country has seen.”

A separate review into the collapse of the Connaught Income Fund, published simultaneously on Thursday, also criticised the FCA. It found that “regulation of the relevant entities and individuals connected to the fund was not appropriate or effective”. Investors lost £118m when the fund failed in 2012.

Mark Bishop, of the Connaught Action Group, said the absence of a compensation scheme for the victims was “a glaring omission”. He also accused the FCA of failing to learn lessons from Connaught that could have prevented the collapse of Neil Woodford’s Equity Income Fund in 2019.

“There are a number of things we could have done better in our supervision of these two firms . . . We are profoundly sorry for the mistakes we have made,” said FCA chair Charles Randell.