London Capital & Finance plc
Failed 09 January 2020
London Capital & Finance plc (LCF) went into administration on 30 January 2019 and FSCS declared it had failed on 9 January 2020.
Since LCF entered administration, FSCS carried out an extensive and complex investigation into how LCF operated. Our aim was to determine if any of the activities LCF carried out were regulated, as this is the only way its customers could be eligible for FSCS compensation.
We worked as quickly as possible because we know LCF’s failure has had dire consequences for its customers, but whether or not a ‘regulated activity’ took place took time to find out as it depends on the exact legal and factual circumstances.
There are many different regulated activities, and different exclusions and exceptions can apply to each. Our investigation has involved significant factual analysis, external legal advice and collecting evidence, such as calls and emails, to determine if investors could be eligible to claim compensation.
Read the timeline below for further details on how our investigation has unfolded and the decisions we’ve reached for LCF’s customers.
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31 Mar, 2020
We are still reviewing all the information gathered to help determine what misleading advice was given by London Capital and Finance (LCF).
As part of this work, we’re in the process of analysing close to a million pieces of information. This includes telephone call recordings, emails and records within LCF’s customer database.
We’ve gathered this information over the last two months from various sources. Despite the COVID-19 situation, we’re doing everything we can to keep working so we can reach a point where we can assess claims as efficiently and effectively as possible.
We’ll provide a further update on our progress by 5 May and will aim to confirm when we will start issuing compensation.
LCF customers don’t need to do anything. Anyone with questions about their claim or the review process can visit the Q&A section by clicking on the tab above.
17 Feb, 2020
FSCS has paid just under £2.7m to 135 LCF customers in relation to 151 bonds. These bonds were invested following transfers out of stocks and shares ISAs. We made these payments automatically, without these customers needing to make a claim themselves.
We've been able to compensate this group of customers because arranging a transfer out of a stocks and shares ISA is a regulated activity.
If you haven’t received compensation from us by 24 February 2020, but believe you transferred out of a stocks and shares ISA, please send us supporting evidence. Find out how to do this on the Q&A tab above.
We’ve also concluded there will be some customers who were given misleading advice by LCF. These customers have valid claims for compensation, and we are continuing to review the evidence as quickly as possible. We recognise the distress that the delay in confirming eligibility is causing.
We will update these customers by the end of March 2020. At this stage, these customers don’t need to make a claim.
11 Feb, 2020
Scammers are targeting London Capital & Finance customers
London Capital & Finance (LCF) bondholders should be wary of messages inviting them to discuss compensation about LCF.
Such messages are being sent through various online and mobile platforms and targeted at consumers who might have a claim regarding LCF. Do not respond to such messages nor engage in any way with the source. FSCS is aware of these scams and reports them to the appropriate agencies. In particular, beware of such messages:
- via WhatsApp, Messenger, or posted on Facebook
- linking to unfamiliar websites
- phone calls from strangers or friend requests from unusual profiles
- claiming to be from FSCS.
If you have any concerns about any communications you may have received about LCF, contact our Enquiries team via our contact page.
09 Jan, 2020
FSCS is now ready to announce its key decisions for claims in relation to the London Capital and Finance (LCF) failure.
- FSCS will protect the 159 bondholders who switched from stocks and shares ISAs to LCF bonds. Customers in this category do not need to take any action. We will pay compensation to these customers by the end of February 2020.
- FSCS is unable to protect the 283 bondholders who dealt with LCF before it was authorised to carry out financial services business (on 7 June 2016). We will contact these customers to confirm this.
- While FSCS maintains that the act of issuing mini bonds is not a regulated activity, and is therefore not something we protect, we have concluded there will be some customers who were given misleading advice by LCF and so have valid claims for compensation. However, we expect that many customers will not be eligible for compensation on this basis. We will provide a further communication with details of when and how customers in this category can submit their claims. We will aim to start reviewing these advice claims in the first quarter of 2020.
FSCS will aim to provide a further update by the end of February outlining the next steps. In the mean-time LCF customers do not need to take any action.
LCF entered administration on 30 January 2019, and since then FSCS has investigated many alternative possible bases for claims. Around 11,600 bondholders purchased 16,700 bonds from LCF worth £237m.
Following those in-depth investigations, we identified one small group of bondholders (159 in total) who are protected, and a further group (283 in total) whose dealings with LCF occurred prior to the firm’s authorisation and are therefore not protected by FSCS. In addition to those groups, FSCS will need to review advice claims – which are likely to represent most claims – on a case-by-case basis to determine whether misleading advice was given.
We’re setting up the process for reviewing advice claims. Advice may have been given face-to-face, by letter or email, or by telephone. The need to review communications between LCF and customers and to assess all the relevant evidence means that advice claims are likely to take some time for FSCS to consider.
While we acknowledge that many customers were given incorrect information about investing in LCF bonds, being given incorrect information on its own doesn’t 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.
04 Oct, 2019
Since our last update, FSCS has made some progress in gathering and examining information and evidence. This includes obtaining further records from Surge Financial Ltd (“Surge”) of customers’ contact with them. We are also continuing to work with Smith & Williamson LLP, the joint administrators of LCF, to obtain further information to assist with our investigations.
Surge is an online marketing company which acted on behalf of LCF, facilitating bond applications from prospective bondholders. Following an initial review of its call recordings and emails to investors, we believed that Surge, acting on behalf of LCF, provided some LCF clients with misleading advice, in both telephone calls and emails.
The further records which have been shared with us will help FSCS determine whether LCF customers are eligible for compensation.
We appreciate that LCF customers are keen to know whether they will be eligible for compensation, and our aim is to clarify the position, so we can make an announcement regarding eligibility as soon as possible. However, the LCF case is very complex, and this may take some time.
A further 2,200 people have completed our fact-finding questionnaire. This takes the total to 7,511, which represents around three-quarters of LCF customers. We'd encourage the remaining LCF customers to complete the questionnaire. This will in no way prejudice any future claim they may have with FSCS.
Claiming with FSCS directly means you get 100% of the compensation you are owed, up to our limit of £85,000, as we provide a free service to customers.
02 Aug, 2019
In the month since our fact-finding questionnaire went live just over 5,500 people have completed it. We are analysing the information provided and it is already helping our ongoing investigation into the nature and extent of any protected claims. We would encourage other investors to complete the questionnaire and remind them that this will in no way prejudice any future claim they may have with FSCS.
Since our last update we have also had a cooperative meeting with representatives from Surge Financial Ltd. They have agreed to provide further information that will help our investigation and we look forward to receiving that soon.
Customers are reminded that coming to us directly will mean they get 100% of the compensation that they are owed, up to our limit of £85,000, as we are a free service.
As we still do not have all the information we need to start accepting claims, and this is a complex case, it will be some time until we are ready to make any further announcements on the process itself.
08 Jul, 2019
More than 4,390 clients of London Capital & Finance completed our fact-finding questionnaire in the first week it was posted.
We want to encourage even more LCF clients to complete our questionnaire as it will enable us to build a better picture of the nature and extent of potentially misleading advice that they may have received.
The information gathered through this process is purely to help us better understand the individual circumstances of investors, and the number of customers who may have been impacted.
Should there be grounds for compensation and we start accepting claims, information given in the questionnaire by LCF clients will not prejudice their claim.
Investors who come direct to FSCS will pay no charge, as we are a completely free service.
28 Jun, 2019
Our investigation into LCF leads us to be believe that there are protected claims, which may result in compensation for some of its investors.
Following an extensive review of LCF’S business practices, we believe that Surge Financial Ltd, acting on behalf of LCF, provided a number of LCF clients with misleading advice. As this is a regulated activity, it means that FSCS protection would be triggered and that there may therefore be a number of customers with eligible claims for compensation.
At this stage though we don’t have access to all of the information needed to determine the nature and extent of this misleading advice, and we’re still working with the relevant parties on gaining access to it.
We’ve therefore launched a pre-application questionnaire, a link to which you’ll find below, for investors to complete in order to help us build a better picture of this advising.
You may have already completed a questionnaire for the administrators, Smith and Williamson, but we still need the information to help us better understand individual investor’s circumstances and the number of customers that may have been impacted. We’ll provide a further update next month.
31 May, 2019
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.
01 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.
Questions and answers
FSCS is in the process of reviewing all the information it has obtained so far (close to a million pieces of information). Our review of this information will allow us to determine whether LCF gave misleading advice to bondholders.
No. At this stage customers do not need to take any action. We are in the process of reviewing all the information we have and will contact customers individually if we need more information about their claim.
Due to the number of calls and emails FSCS needs to review (close to a million pieces of information), and the complexity of the assessment process, it’s too soon to say when we will be in a position to start issuing decisions on advice claims.
However, we are doing all we can to continue working to reach a point where we can assess claims as quickly as possible.
When we pay compensation, all the investor’s rights regarding their investment transfer to FSCS. So, investors who have already received compensation will not receive this dividend.
Instead, we will keep any recoveries, up to the amount of compensation paid to the investor. Any recoveries we receive in excess of that amount will be paid to the investors.
FSCS will only exercise our assignment of rights on a bond-by-bond basis. So, if you have both compensated and uncompensated bonds you will be free to receive the dividend from Smith & Williamson on any uncompensated bonds.
No. The assignment of rights from you to FSCS upon receiving compensation only applies to the particular LCF bond for which you have been compensated. If you have another LCF bond, you will still be able to claim for this.
FSCS may add interest to compensation when there’s a gap between two dates, such as the date the firm failed and the date FSCS calculated compensation. FSCS applies the Bank of England base-rate to compensation after 1 April 2019.
FSCS will accept and assess evidence from customers who believe they transferred out of a stocks & shares ISA to invest into LCF. Customers who believe that they are eligible but have not yet received compensation are invited to provide evidence to FSCS. Evidence can be submitted to FSCS by email at email@example.com
If you’re not sure whether your investment qualifies, check the ‘How do I evidence that I transferred out of a stocks & shares ISA and directly to LCF?’ question in this section.
FSCS will require written confirmation from your previous stocks & shares ISA provider of the following;
- That the transfer of the stocks & shares ISA was direct from the previous provider to LCF
- The date of the transfer
- The payment reference(s) - this is usually the LCF bond number
- The ISA was a stocks & shares ISA (not a cash ISA)
FSCS will also need your recent contact and address details - a copy of a recent utility bill or something similar should be sent with your response.
Customers with this evidence should send the details to firstname.lastname@example.org and FSCS will aim to give you an update within four weeks.
FSCS holds data for bondholders which includes the value of funds invested into each individual bond as well as information on coupon or interest payments made to bondholders. Our compensation calculation takes the amount invested into an individual bond, less the amounts of any coupons or interest payments made.
The compensation only covers money you’d lost by 30 January 2019 (date LCF entered administration) – FSCS can’t cover future or hypothetical losses, including the non-payment of coupons or interest after the date LCF entered administration.
FSCS can only consider claims against firms that were fully authorised by the UK regulator. LCF became fully authorised by the FCA on 7 June 2016. You have received this letter because one of your investments was made before 7 June 2016. This means you aren’t covered by our rules, so we are unable to pay you compensation.
If you held other bonds which were invested after 7 June 2016, these will be assessed under our process for reviewing advice claims.
You have received compensation because your bond is protected under FSCS rules as a switch from a Stocks and Shares ISA. Bonds funded in any other way will be assessed under our process for reviewing advice claims.
FSCS announced on Thursday 9 January 2020 that we would pay compensation to 159 LCF bondholders who transferred out of stocks and shares ISAs to invest into LCF bonds. We can only pay compensation to customers where there is a regulated activity. Arranging a transfer out of a regulated investment, such as a stocks and shares ISA, is a regulated activity.
To determine that this small population of bondholders is protected, we did not need to review customer interactions with LCF. We just needed to be satisfied that the source of the money was an existing stocks & shares ISA.
Separately, we believe that some bondholders received misleading advice from LCF and that these individuals will have valid claims for compensation. Advice is a regulated activity. We will aim to start reviewing these advice claims in the first quarter of 2020.
The remaining bondholders will receive an update by the end of February.
The definition of the regulated activity of advising is set out by the government in legislation, with additional guidance being published by the FCA.
The key difference between advice and information is that advice, in the context it has been given, includes an element of comment or value judgement that is likely to influence a customer’s decision to invest.
This means the decision about whether a customer was given misleading advice will depend precisely on what was said to the customer and in what context. Each advice claim is unique and will have to be assessed individually and a decision reached based on the information we have.
Please be assured that we are working to collect all the evidence and information we require to assess whether customers received misleading advice. We will use this information to determine if you have an eligible claim.
You do not need to take any action at this stage. A further update will be announced by us at the end of February.
FSCS is aiming to pay cases involving transfers to LCF from an existing stocks & shares ISA automatically. We will use LCF’s records, so these investors shouldn’t have to make a claim to FSCS.
If you would like to check for yourself, the documentation you received when you bought your previous ISA will include information about what type of ISA it is. You could also try asking your previous ISA provider for details of who the ISA was transferred to, the date of transfer and confirmation it was a stocks and shares ISA.
The FCA regulates the conduct of 59,000 financial services firms and financial markets in the UK. Its role includes protecting consumers, keeping the industry stable, and promoting competition between financial service providers. This benefits individuals, businesses, the economy and so the public as a whole.
If a regulated investment firm fails and cannot pay claims against it, FSCS may be able to pay compensation to the firm’s customers. This would be subject to our rules, which are set by the FCA. FSCS was set up by the government and is free to use.