Bonds  

FSCS pays compensation on 99% of LCF bonds

FSCS pays compensation on 99% of LCF bonds
 

The Financial Services Compensation Scheme has paid compensation on 99 per cent of bonds impacted by the collapse of London Capital & Finance ahead of the deadline.

In an update today (April 14), the FSCS said it has paid out compensation, as part of the government scheme, for 12,330 bonds, totalling more than £114mn.

The industry lifeboat said it has 88 bonds still to pay in the next week, in time for the deadline of April 20.

Of the remaining bonds, the FSCS said it will issue cheques for 37 in the next few days. The remaining 51 are cases where it has requested documents from the bondholders that have not yet been provided.

The body said there are also 68 cheques that have been sent out but need re-issuing, in cases where for example a bondholder has changed their address. These will go out as soon as new details can be verified.

The FSCS said last year that all bondholders will receive an offer of compensation on behalf of the government by April 20.

These payments are processed as part of a government redress scheme which was launched in November and pays 80 per cent of bondholders’ principal investment in eligible bonds, up to a maximum of £68,000.

But the amount of compensation due to individuals will be reduced if they have received interest on their bonds, distributions from the insolvency administrators (Smith & Williamson) or prior compensation from the FSCS.

LCF collapsed in 2019 owing more than £230mn, putting the funds of some 14,000 bondholders at risk.

Individuals have six months to accept an offer of compensation otherwise they will give up their right to compensation unless there are exceptional circumstances.

The FCA’s handling of the collapse was branded “one of the largest conduct regulatory failures in decades” by the Treasury committee, which urged the FCA to implement a change in culture to protect consumers and financial markets.

A report by Dame Elizabeth Gloster published in December 2020 found the FCA had shown "significant gaps and weaknesses" in its policies and practices ahead of LCF's collapse.

The investigation also found the regulator could have done more to protect investors in LCF and its handling of information from third parties regarding the business was "wholly deficient".

The FCA said it was “very sorry for the errors we made in our handling of this case” and that it was committed to implementing each of the recommendations Gloster made in her review.

sally.hickey@ft.com