Damian Fantato 

Mini-bond debacle shows need for Isa review

Damian Fantato

Damian Fantato

The Financial Conduct Authority has agreed that it should subject itself to an independent review over the London Capital & Finance debacle.

The company collapsed earlier this year when it went into administration after the FCA froze its assets and alleged it had signed clients up to fixed-rate Isas promising 8 per cent interest, when investors’ capital was invested into mini-bonds.

The administrators are estimating bondholders would see as little as 20 per cent of their investment returned to them.

Whenever something like this happens – see also Keydata and the numerous other investment scandals – it is understandable that attention is turned to the FCA.

There are clear problems here, including the fact that the regulator may have been alerted to the problems LCF could cause as early as 2015.

Obviously this review is welcome and warranted and should be as wide ranging as possible – and, indeed, it is positive that the FCA itself initiated this process.

But the wider issue here is how retail investors end up in these sorts of assets to begin with, and the problem here seems to be the stamp of approval given by the Isa.

Launched by George Osborne when he was chancellor, it seems the Innovative Finance Isa allows some companies to exploit the trust that the public places in the Isa brand.

Certainly it is true that many well-run and consumer-minded companies offer Ifisas, but the FCA has said there are concerns about the way these products are marketed.

There is now a wide array of Isas that allow you to buy a home, save for your retirement and invest in high-risk peer-to-peer investments. There is also now the looming prospect of an Isa that allows you to set money aside to pay for your care in old age.

Whether this should remain the case should also be subject to a review.

damian.fantato@ft.com