personal finance

Watchdog freezes UK mini-bond investment firm


Uncertainty is hanging over the investments of 14,000 customers who put their money into a UK company promising 8 per cent returns after the financial regulator banned it from paying out any interest over concerns about its marketing.

London Capital and Finance, which claimed as much as £214m was invested in its individual savings accounts, or ISAs, has been barred from touching any money in its bank accounts after the Financial Conduct Authority launched an investigation.

The watchdog is concerned over whether investors were given the full picture by LCF and whether its marketing was misleading.

LCF was marketing so-called fixed-rate ISAs, with some paying an 8 per cent return over three years. But unlike regular ISAs, LCF was issuing mini-bonds, which went to fund loans it was making to small businesses.

Mini-bonds are unregulated by the FCA, meaning investors could be wiped out if LCF defaults. They are not covered by the Financial Services Compensation Scheme, the UK’s compensation fund of last resort.

Unlike listed retail bonds, mini-bonds are thinly traded and can be high risk because of the higher failure rates of small businesses.

Last week the FCA took the unusual step of announcing an investigation into the company, banning LCF from any regulated activity and ordering that it could not “deal in any way with its assets, including the money held in its banks accounts”. This action came two weeks after the regulator demanded LCF pull its marketing around mini-bonds.

LCF had claimed that bondholders’ funds were safe because it demanded security from the small companies that it was lending to, according to earlier social media posts and online investor forums.

The company grew in prominence since gaining its FCA authorisation in 2015 and sponsored the Osborne Horse Trials in the Isle of Wight last summer.

The FCA estimates about 14,000 customers have their money tied up in LCF’s mini-bonds. But on the question of whether they would get all their money back, the regulator said only that it was working with the company and would publish updates when it was appropriate to do so.

“Issuing mini-bonds is not a regulated activity, so firms issuing mini-bonds do not need to be authorised by the FCA,” the latest FCA statement reads. “However, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with FCA rules, and that the financial promotion is fair, clear and not misleading. This means, for example, that risks are appropriately communicated.”

Tunbridge Wells-based LCF remains authorised by the FCA, according to the watchdog’s register. It did not respond to emailed requests seeking comment.

“We are currently considering, in conjunction with the FCA, the steps that LCF can take going forward. In the meantime, LCF is unfortunately unable to make any further loans to borrowers at present, or to make payments of principal or interest to bondholders,” a statement on its website reads. “At the date of this notice no borrower has defaulted on loans made to it and the security taken in respect of each borrower loan remains in place.”



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