Financial Services Compensation Scheme  

FSCS closes in on potential mis-selling at mini-bond firm

FSCS closes in on potential mis-selling at mini-bond firm

The Financial Services Compensation Scheme is to begin processing claims against a failed mini-bond intermediary which could see a bill of up to £36m shouldered by the industry. 

In an update on its website the lifeboat body said it believed B&G Finance, linked to the unregulated Basset & Gold, may have mis-sold mini-bonds to retail investors from March 2018 onwards. 

It follows an investigation into the firm after it fell into administration in April, having sold approximately £36m worth of bonds to around 1,800 customers. 

The firm collapsed after the Financial Conduct Authority raised concerns about the viability of its mini-bond scheme, which almost entirely invested in the now bust short-term credit lender Uncle Buck.

Now the FSCS has confirmed it is in the "final stages" of its investigation, having previously said many investors had a "good prospect" of claiming compensation. 

Basset & Gold, an unregulated firm, issued bonds to customers while B&G Finance, which is regulated by the FCA, acted as the intermediary between the provider and investors.

They are the latest firms working with mini-bonds to go bust in recent years, following the London Capital and Finance scandal which has unfolded since the beginning of last year. 

The FSCS said: "While this investigation may share similarities with London Capital & Finance, B&G Finance Ltd operated under a different structure.

"It did not issue its own bonds but arranged for customers to buy bonds issued by a different firm. 

"LCF issued its own bonds - which we consider is not a regulated activity - whereas B&G Finance Ltd carried out the regulated activity of arranging."

Although Basset & Gold and B&G Finance have both entered administration, the lifeboat scheme is unlikely to pay compensation on claims against Basset & Gold as issuing the bonds is not a regulated activity.

In its latest communication the FSCS made it clear customers did not need to have received advice from B&G Finance in order to make a claim against it.

The FCA previously had concerns around the accuracy and fairness of B&G’s financial promotions of the mini-bond scheme, prompting the firm to change tack in January 2019.

In June the regulator confirmed it was set to make permanent its ban on the marketing of mini-bonds to retail investors amid concerns over "unexpected and significant consumer loses".

The City watchdog said the permanent ban would protect against the most "complex and opaque arrangements" where funds raised are used to lend to a third party, buy or acquire investments, or to buy or build property.

rachel.mortimer@ft.com

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