Friday, 10 May 2019 10:51

FSCS ‘explores’ compensation for LC&F mini-bond victims

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The Financial Services Compensation Scheme has today launched a registration scheme for victims of the £236m failed mini-bond provider London Capital & Finance (LCF) as it “explores possible grounds for compensation.”

The investor compensation body has asked investors affected by the collapse of the firm to register with it for updates as it looks into whether compensation should be paid.

The FSCS has been criticised for shutting the door initially to compensation claims on the grounds that LC&F clients were putting money into what the FSCS has referred to as ‘not transferable securities’ - rather than transferable securities which are protected by investor protection rules.

LCF went into administration in January with 14,000 bondholders owed a total of £236m. The Serious Fraud Office has made four arrests in connection with the collapse.

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The firm was ordered by the FCA in December to cease marketing activity in relation to its ISA and bonds. LC&F was the issuer of mini-bonds which it is believed were used to make loans to corporate borrowers to provide them with capital for mainly property investments.

The Financial Services Compensation Scheme (FSCS) today urged London Capital and Finance customers to register for updates via its website at https://www.fscs.org.uk/failed-firms/lcf/

The FSCS says it is “keen” to ensure LCF customers are kept up to date as “we continue to explore whether there are grounds for compensation.” 

The FSCS is working closely with the FCA, administrators and external legal counsel, it says.

In a statement the FSCS added: “The promotional materials that we have reviewed stated that the LCF mini-bonds were not FSCS protected.

“However, after further analysis of LCF’s business practices, investment materials, and calls recorded with investors, FSCS is now investigating whether regulated activities were in fact carried out which might give rise to a claim.

“This work and our legal analysis supports our view that LCF’s core activity of issuing their mini-bonds in the UK is not protected but that there are further issues that need examining. We are now therefore focusing on whether there was any regulated advising, arranging or other activities which may trigger our compensation. We also need to better understand the nature of the relationship between LCF and Surge Financial Ltd.”

A spokesperson for FSCS said: “It is clear that LCF investors were badly let down so to help we want to be as transparent as possible over our process.

“By registering with us they will get regular updates on our investigation and this will be the best way for them to hear whether we believe there are grounds for compensation. This is a highly intricate case though, so we expect our investigation may take some time. We appreciate investors’ need for certainty so we can assure them that we are treating the case with the utmost urgency.” 

• Editor's Note: Story updated 12.45 pm to clarify that the FSCS's current stated understanding is that LC&F issued its own mini-bonds to investors on a "non-advised basis and that these mini-bonds were not transferable securities. This activity is not a regulated activity under the Regulated Activities Order and, therefore, is not FSCS-protected." 

 

Last modified on Friday, 10 May 2019 12:54
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