The Financial Services Compensation Scheme has said it may be able to pay compensation to investors with a collapsed mini-bond company if it provided advice - despite the fact it was not regulated to do so.
Administrators for London Capital & Finance are currently combing through recordings of phone calls between the company's representatives and its customers to find out whether they were given advice to buy the mini-bonds.
The FSCS has previously said it will not accept claims from investors in London Capital & Finance because mini-bonds are unregulated investments and therefore not protected by the compensation scheme.
But this could change if evidence of advice is found, because while London Capital & Finance was not regulated to provide investment advice to retail clients, the FSCS has said this may not matter.
A spokesman for the FSCS said: "For FSCS purposes, because the firm was FCA-authorised, it would not matter if the firm lacked the appropriate regulatory permission.
"The FSCS looks at whether a particular regulated activity (eg advising) was actually carried out in practice – if it was, then we may be able to compensate if the firm owes a customer a civil liability in connection with that regulated activity (eg it carried out the activity negligently, or in breach of contract/regulatory rules)."
The spokesman added that it was too early to say whether, if the FSCS ended up paying compensation, this would come from the advice funding pool.
He said: "It will depend upon the details of the claims we would receive. Sometimes our initial estimation of the relevant funding class is revised as the defaults process progresses."
As part of this process, the administrators are looking for evidence that a representative of London Capital & Finance offered any of the company's clients a personal recommendation with an element of opinion on the part of the adviser.
The administrators, Smith & Williamson, said: "Our current understanding is that London Capital & Finance representatives were trained not to provide investment advice to potential investors who they spoke to by telephone or communicated with in other ways.
"However, we believe that in a small number of cases London Capital & Finance representatives may have provided investment advice to customers. In such cases, customers might be entitled to claim that the advice was negligent and accordingly are entitled to FSCS compensation.
"The questionnaire we are sending to investors is intended to identify those individuals to which this may relate. We are investigating whether this is what happened in practice."
London Capital & Finance went into administration at the end of January, putting the funds of more than 14,000 bondholders at risk.
Shortly before the collapse the Financial Conduct Authority had ordered London Capital & Finance to stop marketing its fixed-rate investment bonds and Isa products and the provider had its assets frozen by the regulator.
The FCA alleged the Tunbridge Wells-based firm had signed clients up to fixed-rate Isas promising 8 per cent interest, with investors' capital then invested into mini-bonds used to issue loans to small businesses.
