LCF bondholders could get back up to 80% of their initial investment
If you lost money following LCF’s collapse, here’s what you could be entitled to under the Government’s new scheme when it launches:
- Provided the scheme is approved by Parliament, 8,800 investors could get back up to 80% of their initial investment, up to a maximum of £68,000. The Treasury believes this level of compensation is “fair” and “appropriately balances” the interests of bondholders and the taxpayer.
- Any interest you’ve 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’re affected, you don’t need to do anything at this stage. The Treasury says it 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. We’ve asked the Treasury when this will be and whether the scheme will pay out to a bondholder’s estate if they’ve since passed away. We will update this story when we know more.
- Beware of scammers and claims firms – you’ll be able to claim by yourself for free. In the meantime, the Treasury has stressed 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 won’t be able to use the Treasury scheme if you’ve already received compensation from the FSCS
There are some exclusions to the new Treasury scheme though:
- If you’ve already had compensation from the FSCS, you WON’T get more money back. According to the FSCS, it has now paid out over £57 million in compensation to more than 2,800 bondholders. But only those who haven’t already been compensated by the FSCS scheme will have a claim under the new Government scheme.
Investors are only be eligible for FSCS 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 today added that it believes all eligible investors have now been compensated, although you you can submit evidence to it to review if you believe you have a claim. See the FSCS website for more info.
If you can claim under the FSCS it may be you’re able to get more money back than under the Government’s scheme given the FSCS has a higher limit of £85,000 per financial institution. The Treasury says around 97% of LCF investors had put in less than £85,000.
- 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 said today it 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. We’ve asked whether investors could be eligible for both schemes and we will update this story when we know more.
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.
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 the FCA’s remit.