London Capital & Finance plc

Under investigation

Since 30 January 2019

LCF logo.jpg

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FSCS's position

FSCS deals with compensation claims when financial firms go out of business. We were set up under the Financial Services and Markets Act 2000, and our rules, which govern when we can pay compensation, are set by the UK regulators, the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA).

For investment compensation claims, several criteria need to be met:

  1. there must be an eligible claimant;
  2. with a protected claim;
  3. against an authorised firm that is in default.

The ‘protected claim’ part means that the firm in default must owe a civil liability to the customer that would have enabled the customer to sue the firm in court.  Importantly, this civil liability has to be in connection with a regulated activity carried out by the firm.

Whether or not a ‘regulated activity’ took place can sometimes take time to find out, as it depends on an in-depth analysis of the circumstances in each case (e.g. were particular words used when the firm communicated with customers).  It’s also legally complex – there are many different regulated activities, and different exclusions and exceptions can apply to each.

When an investment firm fails, we know that this can have dire, even tragic, consequences for the firm’s customers. In every case we work as quickly as possible to try to establish whether there are ‘protected claims’ that would allow us to put the firm into default and start accepting claims for compensation. However, the circumstances where we can pay compensation are strictly governed by our rules.

Latest updates

31 May

Over the last few weeks we’ve been reviewing whether there may be grounds for compensation. As we’ve previously mentioned, this work is focused on the relationship between LCF and Surge Financial Ltd and the extent to which either company may have been carrying out regulated advising, arranging or other activities that could give rise to some eligible claims for compensation.


Following our investigations, we now understand LCF’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. This is a complicated case involving significant factual analysis, external legal advice and close work with both the FCA and the administrators, so it will take time.

 

10 May 2019

The promotional materials that we’ve reviewed stated that the LCF mini-bonds were not FSCS protected. However, after a further review of LCF’s business practices, investment materials, and calls recorded with investors, FSCS is investigating whether regulated activities were carried out that might give rise to a claim.

This work and our legal analysis supports our view that LCF’s core activity of issuing their mini-bonds in the UK was not protected, but there are further issues that need examining. We’re focusing on whether there was any regulated advising, arranging or other activities that may trigger our compensation. We also need to better understand the nature of the relationship between LCF and Surge Financial Ltd.

 

1 May 2019

London Capital & Finance plc (LCF) entered administration on 30 January 2019. The Administrators are representatives from Smith & Williamson LLP.  Further information is available on their website at:  https://www.smithandwilliamson.com/london-capital

 

FSCS understands that LCF issued its own mini-bonds to investors and that mini-bonds issued in the UK were not transferable securities. The act of issuing these investments is not a regulated activity, and so this is not something that FSCS can protect.  For this reason, although the firm is insolvent, we’re not currently able to declare the firm in default under our rules, or to start accepting claims for compensation. 

 

We’re continuing to work closely with the administrators and the FCA to try to establish whether LCF might have carried out any other regulated activity for which we could compensate customers.  As explained above, this requires an in-depth analysis of this case’s particular circumstances.  The firm’s records and information provided by customers and other sources will be used to build a picture of how the firm operated, and while we understand investors’ frustration and desire for clarity, this process will take time. 

 

As our work progresses we will update this page with further information for LCF’s customers, including if we determine that we can start to accept claims against the firm.

 

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