Britain’s financial watchdog has been accused of unlawfully changing its complaints scheme “via the backdoor” in an attempt to avoid paying compensation to victims of failed funds or investment scams.

The Financial Conduct Authority (FCA) is purported to have changed its complaints scheme just as it was facing hundreds of claims from savers who had lost more than £200m in the collapse of the investment firm London Capital & Finance (LCF) in 2019. It denies acting unlawfully and insists it was “clarifying” the scheme’s guidelines. The watchdog is now being investigated by the Financial Regulators Complaints’ Commissioner over the controversy.

The FCA is under fire after a string of scandals on its watch, including the closure of Neil Woodford’s £3.1bn Woodford Equity Income Fund which shut down in October 2019 with heavy losses for tens of thousands of investors. Under the current rules, the victims of financial scandals can claim ex-gratia compensation payouts from the FCA where it has failed to safeguard consumers.

The regulator published guidelines in June last year which said consumers would only be entitled to payouts when the regulator was “solely or primarily” responsible for their losses.

Andrea Hall, a member of the LCF bondholders campaign group, said: “They thought they would just change the rules and no one would challenge them. We wanted them to hold their hands up and pay compensation because they haven’t been punished.”

“They wanted to shut that door on this wall of complaints on their regulatory failures. It is sheer arrogance.”

More than 1,000 victims of the LCF scandal have complained to the FCA. Most have been refused compensation for its admitted regulatory failings, but have been offered settlements of between £50 and £125 because of the delays in dealing with their complaints.

Amerdeep Somal, the Financial Regulators Complaints’ Commissioner, is now investigating the refusals. A confidential draft report of her preliminary findings seen by the Observer says the watchdog tried to make changes to its complaints scheme “via the backdoor” which appeared “contrary” to its statutory purpose.

“The underhand manner in which the FCA set about changing their compensation scheme is utterly shameful,” said Gina Miller from the True and Fair Campaign, which campaigns for better financial regulation. She said the guidelines were “unlawful” and “should be immediately removed.”

Amanda Cunningham, 53, who lives near Colne, Lancashire, invested £22,000 to help build a savings pot for her son Jack, 22, who is autistic, but the money was wiped out by the collapse of LCF. She said: “[The FCA] were there to protect people and they failed. They were asleep at the wheel. We want to know that lessons have been learned and that the public will be safeguarded.”

A report published by the former court of appeal judge, Dame Elizabeth Gloster, last December confirmed a catalogue of failures by the watchdog over the collapse of LCF, which offered fixed interest on unregulated bonds. The Serious Fraud Office is now investigating the collapse.

The Gloster report found the FCA failed to respond to repeated warnings of potential fraud at LCF because of a lack of clear policies on how staff pass on allegations of fraud or serious irregularities in the sales of unregulated products. These included several written warnings and calls, including one call from a member of the public on 15 July 2016 which warned LCF was operating a “pyramid scam”.

The watchdog’s chairman, Charles Randell, announced his resignation last month, a year earlier than planned. He said it was the right time for a new chair to complete a transformation of the regulator. The Observer revealed last month that the watchdog has paid out bonuses of more than £125m to its staff since 2016.

HM Treasury announced a £120m scheme in April to pay compensation to LCF bondholders. Some investors were also able to make claims under the Financial Services Compensation Scheme. The investors took separate action against the FCA because they want it to accept liability and pay compensation for its failures.

The Financial Regulators Complaints Commissioner’s office said the investigation into LCF complaints was ongoing and the commissioner would be considering responses to the preliminary report.

An FCA spokesperson said: “The statement we issued in June 2020 did not introduce any new test but instead set out our longstanding approach to offering payments in recognition of financial loss. There has been no change to the substance of the test and LCF complaints are being considered under the existing scheme.

“It has already been agreed that investors who have experienced losses as a result of the collapse of LCF are able to receive compensation from either the government compensation scheme or the Financial Services Compensation Scheme.”