London Capital & Finance investors to start getting decisions on compensation claims this month

The Financial Services Compensation Scheme (FSCS) has been carrying out extensive investigations after LCF went into administration last year, to check whether its customers are entitled to compensation.

After analysing almost one million pieces of information – including recordings of telephone calls, emails and records from LCF's customer database – the FSCS says it's now started reviewing compensation claims related to misleading advice on a case-by-case basis. It will start to issue decisions on individual claims at the end of May, and aims to have reviewed all claims by the end of September.

What happened to London Capital & Finance?

LCF sold 'mini-bonds' – a type of high-risk investment which are essentially IOUs issued by a company to an investor. The investor receives a set interest rate during their investment term, and will be due their money back at the end – but could be left with nothing if the business fails.

According to the FSCS, around 11,600 investors bought bonds from LCF worth £237 million.

But in December 2018, the Financial Conduct Authority (FCA) ordered LCF to remove marketing material which it described as "misleading, not fair and unclear". Its concerns included the fact that LCF's bonds were being marketed as being ISA-eligible, when they were not.

In the same month, the regulator also imposed strict requirements on the firm, including bans on carrying out regulated activity and communicating any financial promotions. LCF went into administration in January 2019 and was declared "failed" in January 2020.

Who could be entitled to compensation?

The FSCS can only pay compensation to consumers where financial activity is regulated – and unfortunately, the sale of mini-bonds isn't generally regulated.

It has already paid around £2.7 million in compensation to 135 customers who had invested their bonds after making a transfer from a stocks and shares ISA, as this is a regulated activity.

The FSCS says some customers will also have valid claims for compensation due to being given misleading advice by the firm – again, this is because advice is a regulated activity.

However, the FSCS says for information to be defined as "advice", it must have an element of comment or value judgement which could influence a customer's decision. This means the FSCS has to analyse exactly what was said to each individual customer in order to decide whether they were given misleading advice.

Unfortunately, the FSCS has already said it expects a large proportion of former LCF customers WON'T be eligible for compensation on this basis.

I'm a former LCF customer – what can I do?

The FSCS says former LCF customers don't need to submit a claim or provide any further info at this stage – so you don't need to take any action based on this announcement.

Once a decision has been reached on your individual case, you'll receive a letter telling you what the outcome was. If the FSCS decides you are entitled to compensation, you'll receive a cheque along with this letter.

You can find more information on the FSCS's London Capital & Finance page.

What does the FSCS say?

FSCS chief executive Caroline Rainbird said: "Having spent time reviewing all of the information we have gathered, I am pleased that we are now in a position to look at individual claims and will start to issue decisions on those claims this month, thereby providing some certainty for LCF customers.

"We appreciate that this process has been a lengthy one, and that for many LCF customers the wait is not yet over. We want to reassure LCF customers that we are continuing to work tirelessly to bring this process to a conclusion and ensure that those customers who are entitled to compensation receive it."