FSCS announces decision on LCF claims
The Financial Services Compensation Scheme (FSCS) today announces 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. FSCS 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). FSCS will contact these customers to confirm this.
- Whilst FSCS maintains that the act of issuing mini bonds is not a regulated activity, and is therefore not something FSCS protects, FSCS has concluded there will be some customers who were given misleading advice by LCF and have valid claims for compensation as a result. However, FSCS expects that many customers will not be eligible for compensation on this basis. FSCS will provide a further communication with details of when and how customers in this category can submit their claims. FSCS 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.
Caroline Rainbird, FSCS’s CEO said: “I regret that LCF investors impacted by the firm’s failure have been waiting several anxious months to find out whether or not they may be eligible to receive compensation from FSCS.
“In reaching this stage, it was essential we carried out a thorough factual and legal analysis. To assist our ongoing investigations, we have received over 7,000 questionnaires and obtained thousands of telephone recordings and a vast number of emails. We have also taken legal advice.
“I appreciate that the initial decisions and outlook we are announcing today are likely to be disappointing to many LCF customers. We are, however, working as quickly as we can to establish a suitable process for determining customers’ claims, and expect to be in a position to start this process in the next few weeks.”
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, FSCS has 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.
FSCS is 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.
Whilst FSCS acknowledges 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 its investigations so far, FSCS believes many LCF customers are unlikely to be eligible for compensation on the basis of misleading advice.
LCF customers do not need to take any action at this stage. FSCS will aim to provide a further update at the end of February with details of the next steps.
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