London Capital & Finance investors given compensation hope under new Government scheme

Around 11,600 people had invested a combined £237 million with the firm before it went into administration last year. LCF was authorised by the Financial Conduct Authority (FCA), but it mainly sold mini-bonds, which aren't regulated, so investors have struggled to get their money back after the firm's collapse. 

But an independent investigation led by Dame Elizabeth Gloster has now concluded there were "significant gaps and weaknesses" in the policies of the FCA, which could mean bondholders didn't get the level of protection they were entitled to expect.  

As such, the Treasury has today said it will set up its own scheme to determine whether some bondholders could be given extra one-off compensation payments in certain circumstances - although it's unclear how exactly this scheme will work. It's also set out the main channels investors can use to try and get compensation.   

Both the FCA and the Government have also accepted recommendations from the report, including consulting on whether to regulate products such as mini-bonds. See our Are your savings safe? guide for help protecting your cash. 

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. 

In December 2018, the 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.

How can investors try to get their money back?

If you've lost money following LCF's collapse, here are the main avenues you can use to try and get your money back: 

• Through ongoing legal action. This is being pursued by LCF's administrators but bondholders aren't expected to get all their money back through this route - in fact, it's estimated that as little as 25% of  bondholders' original investments could be recovered. We're checking whether there's anything you need to do to to try to get compensation through this route, and we will update this story when we hear back.

• Through the Financial Services Compensation Scheme (FSCS). The FSCS has been carrying out extensive investigations to decide whether LCF bondholders could be entitled to compensation through it. 

  But investors will only be eligible for this type of compensation for financial activity that was regulated - for example, if they had invested their bonds after making a transfer from a Stocks and Shares ISA, or had been given misleading advice by LCF. The FSCS has already said it expects a large proportion of LCF investors won't be eligible for this compensation as a result.

  LCF investors started getting decisions on whether they'd receive compensation through this route earlier this year, and the FSCS says it's now paid out around £50 million to around 2,500 bondholders. There is also a hearing scheduled for January 2021 which could affect who is eligible for compensation through the FSCS. 

  The FSCS has said former LCF customers don't need to provide any further info while it's reviewing compensation claims – once a decision has been reached on your individual case, you'll receive a letter telling you what the outcome was (along with a cheque if it's been decided you're owed compensation). 

• Through the FCA complaints scheme. The FCA will consider claims from bondholders who believe they've suffered financial loss due to the actions (or inactions of the FCA), through its complaints scheme.

  If you believe this is the case for you, you can submit a complaint through the FCA's online form. The FCA says it will handle complaints around LCF "as quickly as we are able to" and on an individual basis, so you may be able to claim compensation this way.

• Through HM Treasury's scheme. The Government has acknowledged some bondholders will be able to recover less money than others through these three schemes listed above. As a result, it will also set up a scheme, which will decide whether there is justification for extra one-off payments for some bondholders. It's not yet clear how much this compensation could be or how it would be decided, but more detail on this scheme is expected in the New Year. 

What do the FCA and Government say? 

Charles Randell, chair of the FCA, says: "We accept all the recommendations that have been made to the FCA and we are profoundly sorry for the mistakes we have made."

Economic secretary to the Treasury John Glen adds: "LCF’s failure had a significant impact on the bondholders who have lost their hard-earned savings and the government will take forward the report’s recommendations to ensure our regulatory system maintains the trust of the consumers it is there to protect."