Financial Services Compensation Scheme  

FSCS edges closer to compensating mini-bond investors

FSCS edges closer to compensating mini-bond investors

The Financial Services Compensation Scheme could be one step closer to accepting claims against a collapsed mini-bond provider which put the funds of more than 14,000 bondholders at risk.

In an update on its website published today (May 31) the life-boat fund said it now believes there are "sufficient grounds" to continue exploring investor compensation against London Capital & Finance. 

London Capital & Finance entered into administration at the end of January owing more than £230m, with the FSCS previously stating it would not accept claims from investors because mini-bonds are unregulated investments and therefore not protected by the compensation scheme.

However more recently the scheme confirmed it may be able to pay compensation to investors if the mini-bond provider was found to have provided advice, despite the fact it was not regulated to do so, and promised to focus on whether there was any "regulated advising, arranging or other activities which may trigger our compensation".

In today's update the FSCS said it had been reviewing grounds for compensation over the last few weeks, with a particular interest in the relationship between London Capital & Finance and its marketing agent Surge Financial Ltd and whether the companies were involved in regulated advising or other eligible activities. 

The scheme stated: "Following our investigations, we now understand London Capital & Finance’s business practices much better, and we believe there are sufficient grounds for us to carry on exploring these issues.

"One increasingly important aspect is the need to consider the different ways investors dealt with the firm when buying their products, as this could impact whether compensation is due or not."

The FSCS said the case remained "complicated" and involved "significant factual analysis", external legal advice and close work with both the FCA and the administrators. 

A law firm representing some of the London Capital & Finance bondholders recently wrote to the FSCS urging it to consider whether the company carried out additional regulated activities, including "dealing in investments as principal" and "operating a collective investment scheme" in light of finding additional avenues for compensation.

Earlier this month a FSCS spokesperson said it was clear investors had been "badly let down" and so the scheme wanted to be "as transparent as possible" in trying to help. 

As a result of London Capital & Finance's collapse MPs have called for Andrew Bailey to resign from his position as chief executive of the Financial Conduct Authority, for what they claim is his part in "presiding over the biggest financial scandal in recent years". 

An early day motion calling for Mr Bailey's resignation over the issue now has 18 signatures, expressing "alarm" over concerns the regulator did not act quickly enough to identify and act upon problems in the firm. 

rachel.addison@ft.com