London Capital & Finance investors in line for up to £68,000 payout under new Government scheme - but they won't get back everything lost
Around 8,800 London Capital & Finance (LCF) investors are set to receive compensation under a new Government scheme, the Treasury has announced today. But investors will only get back 80% of their initial investment, capped at £68,000.
This will be a welcome relief to many, but larger savers will be disappointed they won't get back everything they put in. The confirmation of a redress scheme follows an independent investigation, which last year concluded there were "significant gaps" in the policies of the Financial Conduct Authority (FCA), which could have meant LCF bondholders didn't get the level of protection expected.
LCF was authorised by the FCA but it mainly sold un-regulated mini-bonds, so investors have struggled to get their money back after the firm's collapse. Around 11,600 people invested a combined £237 million with LCF before it went into administration in 2019. The Treasury's new scheme will only be available to the 8,800 people who haven't already successfully claimed via the Financial Services Compensation Scheme (FSCS).
See our Are your savings safe? guide for help protecting your cash.
How the compensation scheme will work
The Treasury's new compensation scheme first needs to be rubber-stamped by Parliament before it can go-ahead - something it says it will raise "as soon as parliamentary time allows". Once approved, here's how the scheme will work:
- 8,800 investors could get back 80% of their initial investment, up to a maximum of £68,000. This includes bondholders who've since passed away. The Treasury says it believes this level of compensation is "fair" and "appropriately balances" the interests of bondholders and the taxpayer. It adds that around 97% of LCF investors had put in less than £85,000.
- Any interest or money from the administrators you've already been paid will be deducted from your compensation amount. If you've been paid interest from LCF or had money back from LCF's administrators, Smith & Williamson, this will be deducted from the amount of compensation you're eligible for under the Government scheme.
- If you've already had compensation from the FSCS, you WON'T get more money back. If you've already been compensated by the FSCS you won't have a claim under the new Government scheme - regardless of how much you received from the FSCS. The FSCS has so far paid out 100% of people's initial investment up to its usual cap of £85,000. In total, it has paid over £57 million to more than 2,800 LCF bondholders.
Investors are only eligible for FSCS protection for financial activity that is regulated - so if, for example, LCF had transferred an investor's money from a Stocks and Shares Isa into its bonds or if it had provided the investor with advice in relation to their investments. If you meet this criteria, you should have been automatically contacted by the FSCS and sent a cheque in the post without needing to have submitted a claim.
The FSCS believes all of these investors have now been compensated, although you can submit evidence for it to review if you believe you still have a claim. See the FSCS website for more info. If you submit a claim via the FSCS scheme, and it's successful, you won't then be able to claim via the Government scheme. But if your FSCS claim is rejected, you'd be able to take your case to the Government's scheme once it launches.
- It's unclear if you can claim from the Treasury if you're due a payout from the FCA. Investors were also able to complain to the FCA about information it had given them directly regarding LCF. The FCA will offer compensation to those who fall into this category and who have not already been compensated by the FSCS.
It added that it will contact affected investors directly to discuss the details of the payments they're due to get and how these will interact with the Government compensation scheme. It's unclear if you could be eligible for both schemes - we will update this story when we know more.
- If you're affected, you don't need to do anything at this stage. The Treasury will publish further details about how the scheme will operate "in due course". It expects to have paid all bondholders within six months of securing the necessary legal framework in Parliament.
Beware of scammers contacting you about LCF payouts
The Treasury has stressed that you should beware of the risk of scammers posing as services to help you claim. You WON'T need to use a claims management company, solicitor or any other organisation to claim – you'll be able to do so by yourself for free. See our 30+ Ways to Stop Scams guide for more help on what to watch out for and and what to do if you think you've been scammed.
London Capital & Finance went into administration in 2019
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.
What does the Government say?
Economic secretary to the Treasury, John Glen, said: "This has been a very difficult time for LCF bondholders, many of whom are elderly and have lost their hard-earned savings.
"It is an important point of principle that Government does not step in to pay compensation in respect of failed financial services firms that fall outside the Financial Services Compensation Scheme. However, the situation regarding LCF is unique and exceptional and the government has decided to establish a compensation scheme for LCF bondholders in this instance."
The Treasury has also today launched a consultation on proposals to bring mini-bonds under FCA regulation.