The Financial Services Compensation Scheme will pay out to 159 of the minibond holders who lost funds through the collapse of London Capital and Finance, but is yet to review thousands more cases involving potentially misleading advice.
In an update published today (January 9) the lifeboat scheme confirmed it would compensate 159 consumers who switched from stocks and shares Isas to LCF bonds, but it added the 283 bondholders who dealt with the firm before it was authorised would not be covered by the scheme.
The FSCS still needs to review advice claims — which it says are likely to be the majority of cases — on a case-by-case basis to determine whether misleading advice was given.
However the scheme said today it expected many customers would not be eligible for compensation on an advice basis.
The FSCS added: “While we acknowledge that many customers were given incorrect information about investing in LCF bonds, being given incorrect information on its own does not constitute misleading advice.
“For that reason, and based on our investigations so far, we believe many LCF customers are unlikely to be eligible for compensation on the basis of misleading advice.”
It pledged to review the claims during the first quarter of this year.
The FSCS has been investigating whether LCF bondholders have a right to compensation since the company went into administration at the end of January last year, putting the £237m invested by about 11,600 bondholders at risk.
It had previously announced it would not accepts claims from investors in LCF because mini-bonds were unregulated investments and therefore not protected by the compensation scheme.
But in April the scheme confirmed it was potentially able to pay out if the mini-bond provider was found to have provided advice — despite the fact it was not regulated to do so — and in June concluded that misleading advice was given to customers of the collapsed firm.
In today’s announcement the FSCS said it was setting up the process for reviewing advice claims, warning the process of looking at communications between LCF and customers was “likely to take some time”.
The Financial Conduct Authority has since introduced a temporary ban (until the end of 2020) on the marketing of mini-bonds to retail investors after finding the risk to consumers was sufficiently “serious and immediate” to justify intervention without consultation.
Shortly before the collapse of LCF, the FCA ordered the company 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.
imogen.tew@ft.com
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