The government expects to pay out £120m in total under its scheme to 8,800 victims hit when mini-bond firm LCF collapsed. The FSCS is administering the scheme for the government.

The recipients of the new government-funded payouts will be those who have not already been compensated by the FSCS directly. 

The Financial Services Compensation Scheme has already paid more than £57m to 2,800 LCF bondholders but many LCF victims were not covered by the FSCS scheme due to gaps in how LCF was regulated by the FCA.

Some 11,625 investors lost savings worth a total of £237m when LCF collapsed, with the majority facing heavy losses until the government stepped in to provide compensation after a campaign to expose regulatory failings. 

Under the new government-backed scheme individual LCF bondholders will not get full repayment of their losses. The government scheme will only provide 80% of LCF bondholders’ initial investment up to a maximum of £67,000. Overall LCF bondholders will receive about 80% of what they would have received under the original FSCS scheme. The government says 97% of LCF bondholders invested less than £85,000 and most will get the majority of their money back.

In a statement the FSCS said: “We have now started to contact and offer compensation to bondholders who are eligible under the government's LCF compensation scheme.”

The letters include details on what bondholders need to do to accept the offer, the payment terms and some calculation examples.

There are more details about the government's scheme at www.gov.uk/LCF-compensation-scheme 

The FSCS says all bondholders will receive their offer by 20 April.

Bondholders who held ISAs with LCF can use the compensation payment to make a single payment into another ISA without it counting towards their annual subscription limit.