The investigation must also examine whether the FCA received relevant third party information relating to LCF; whether the FCA had “appropriate policies” to respond to such third party information and whether any processes were properly applied.
The Treasury’s direction also sets out detail as to how the investigation should be conducted.
In particular, it specifies that the investigator must liaise with the SFO and the FCA to ensure that the investigation does not prejudice the ongoing joint investigation and any subsequent prosecutions or regulatory actions by the SFO and FCA.
The Treasury’s direction specifies that the final report should include the investigators findings, conclusions and the FCA’s response to those findings, conclusions and recommendations - including any lessons the FCA considers it should learn from the investigation.
The Treasury directs that this report be completed within twelve months, in the absence of satisfactory reasons for its delay.
All these investigations are undoubtedly in the public interest.
However, the specific interests of the thousands of people who may have lost their life savings as a result of the collapse of LCF must also be carefully considered. For these investors, perhaps the most important question is whether any of the relevant companies will be in a position to repay the loans.
Loan repayment
Earlier this year, LCF’s administrators Smith and Williamson warned that most of the businesses LCF invested in had been unable to provide proof that they would be able to repay their loans.
Only one company, Independent Oil & Gas, looked like it would be able to repay a substantial part of its loan.
The administrators estimate that investors can only expect to get around 20 per cent of their investment back.
Investors’ hopes of being able to recoup their losses from the Financial Services Compensation Scheme were initially dashed as a result of mini-bonds not being regulated investments.
However, despite originally stating that it would not accept claims from investors in the collapsed scheme, the FSCS has more recently been exploring possible grounds for compensation for those affected.
The scheme – which can pay up to £85,000 per eligible person - has now indicated that it may pay compensation to investors if LCF is found to have provided advice when it was not regulated to do so.
To that end, the FSCS issued a fact-finding questionnaire last July, which has already been completed by thousands of investors.
The scheme’s focus is on whether there was any “regulated advising, arrangement or other activities which may trigger compensation.”
As part of that investigation, the FSCS says it wants to “better understand” the relationship between LCF and the company founded by Surge Financial’s chief executive, Paul Careless.
