Economic Secretary John Glen MP wrote to Nicky Morgan MP, chair of the Commons Treasury Committee revealing his intentions to investigate.
In the letter he wrote: “As you know, on 23 May I directed the Financial Conduct Authority (FCA) to begin an investigation into the circumstances surrounding the collapse of LCF and the FCA's supervision of the firm.
“I have approved the appointment of Dame Elizabeth Gloster to conduct this investigation.
“Alongside this, I also announced that HMT would review the wider policy questions raised by the case of LCF.
“These relate to the regulatory and tax treatment of the investment products LCF issued.
“While these products are often known as "mini-bonds", for the sake of precision I refer below to non-transferable debt securities issued by companies to consumers.”
He added: “The Treasury will consider the regulatory arrangements currently in place for the issuance of non-transferable debt securities issued by companies to consumers - and similar products - including the financial promotions regime which governs the marketing of those investments. This will be supported by broader research into these investment s and their role in the economy.
This work will examine:
• The size and economic value of this market in the UK, including how this has changed in recent years
• The investors active in this market, including their characteristics and the factors that influence their decisions
• The routes through which investors access this market and the information available to investors through financial promotions and other material
• The companies that access this market to raise capital, including the reasons why they choose to issue a non-transferable debt security (over other types of securities) and what this capital is used for.”
Thousands of investors lost a total of £237m after LCF failed in January.
The letter also revealed a review of the rules relating to Innovative Finance ISAs (IF ISA).
It stated: “It is important that the regime functions effectively for consumers, ISA managers and the Exchequer alike.
“The Treasury will therefore work with HMRC to review the tax rules for, and administration of, the IF ISA.
“Working with the FCA, the review will also look at the relationship of these rules to the wider regulatory framework for consumers and financial services firms.
“Separately, a review will consider how the market for IF ISAs has developed since they were introduced in 2016 to ensure the IF ISA rules remain appropriate and have the right flexibility to respond to future market developments.
“Once this work is completed, I will consider whether there should be any reform to the legislative framework.”
Mr Glen said he expected the review to be completed “by early next year”.