A compensation scheme will be set up by the Treasury to make payments to people who lost money in the collapse of London Capital and Finance (LCF).
An independent review has concluded that the Financial Conduct Authority (FCA) “did not effectively supervise and regulate” LCF.
Some 11,625 people invested a total of £237m with LCF before it collapsed into administration in January 2019.
Many lost all their investment, but may now receive one-off payments.
“The scheme will assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders,” said economic secretary to the Treasury John Glen.
What happened in this case?
Many people who put money in to LCF were first-time investors, including inheritance recipients, small business owners or newly retired.
They believed they were putting their money into safe, secure fixed-rate ISAs, approved by the FCA. In fact, LCF was approved, but the products – which were high-risk mini-bonds – were not.
LCF offered returns of around 8% on three-year mini-bonds.
The FCA ordered LCF to withdraw its marketing and, following further investigation, then froze LCF’s assets leading the company to collapse into administration.
A report by the administrators said there were a number of “highly suspicious transactions” involving a “small group of connected people” which led to large sums of investors’ money ending up in their “personal possession or control”.
Many investors face the possibility of losing most, if not all, of their money. In some cases, that was many tens of thousands of pounds.
Several independent financial advisers said they warned the FCA, some as far back as 2015, about what they felt were “misleading, inaccurate and not clear” adverts, often promoted on social media.
‘This was my son’s money’
Among those who lost money invested in LCF was Amanda Cunningham, who had put decades worth of savings into the scheme – for her son’s future.
“He [her son] suffers with autism, I don’t even know if he’ll be able to hold down a job. That money was there to give him the life he should have,” she told Radio 4’s Money Box.
“I can’t afford to keep him forever and if anything happens to me that money was there for his future”.
She said she hoped the review would change the accusation that the investors were at fault for losing their money. She has only received a fraction back in compensation.
“It [the FCA] should have protected us,” she said. “The whole system is at fault, and wrong.”
What is this review about?
Dame Elizabeth Gloster, a retired judge, was appointed by the FCA, on direction of the government, to conduct an independent review into the events and circumstances surrounding the failure of LCF.
Specifically, she considered whether the FCA “discharged its functions in respect of LCF in a manner which enabled it effectively to fulfil its statutory responsibilities”.
She did not investigate whether victims should, or should not, receive compensation. That is the subject of court proceedings brought by campaigners.
Separate investigations by the FCA and the Serious Fraud Office (SFO) into LCF are continuing. The SFO has made five arrests.
Earlier this month, the FCA permanently banned mass-marketing of speculative mini-bonds to retail investors.