A small number of investors in London Capital & Finance have received the first compensation payments a year after the mini-bond issuer’s £236m collapse, but about 98 per cent of the bondholders are still waiting to hear if they have any chance of getting their money back.
The UK’s Financial Services Compensation Scheme said it had paid out slightly less than £2.7m to 135 LCF customers, in relation to 151 bonds. But the recipients of the payouts represent just a fraction of the 11,600 investors who bought the unregulated investment products in the hope of returns of as much as 8 per cent.
Those awarded full refunds were investors who had transferred money out of tax-advantaged individual savings accounts to buy LCF bonds. Their claims were approved automatically, without the need to submit an application to the FSCS, because transfers out of a stocks and shares Isa are deemed a regulated activity. Further claims will be accepted from any other Isa transfer investors who have not already been contacted by letter, the FSCS said.
But investors who were given misleading advice by LCF, which should entitle them to compensation from the FSCS, were told they must wait longer for their cases to be assessed.
“We are continuing to review the evidence we hold . . . we will provide a further update to customers by the end of March 2020,” the redress scheme said in a statement.
No figure was given for the number of possible claimants but, in January, the FSCS warned that “many customers” would not be eligible for compensation on this basis — suggesting that most LCF mini-bondholders will receive nothing from the scheme.
“We appreciate that this is a difficult time for the majority of LCF’s customers who are still waiting to find out if they are entitled to compensation. FSCS is making progress in finalising its arrangements for reviewing advice claims and is committed to ensuring the process is as quick and as easy as possible for customers,” Caroline Rainbird, the FSCS’s chief executive, said.
LCF offered mini-bonds which are a type of unregulated loan investment intended to fund small businesses but are higher risk and harder to exit than the stock market-traded bonds issued by established companies. So, although LCF itself was regulated, its mini-bonds were not and are therefore not generally covered by the FSCS, unless bought with advice.
For those not covered by the scheme, one of the last hopes of recovering any money is an investigation into the regulation of LCF, being conducted by Elizabeth Gloster, a former Court of Appeal judge.
Lawyers believe there could be grounds for further payouts, if the probe finds that the regulator — the Financial Conduct Authority — failed in its duty. Dame Elizabeth is due to report her findings in July.
However, the FSCS said last month that 283 bondholders would receive nothing because they invested in LCF before June 2016 — a time when the group had not yet been authorised by the FCA.