Interactive Investor

LCF mini-bond Isa investors get £20,000 each compensation on average

18th February 2020 17:05

Laura Miller from interactive investor


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The FSCS has paid out £2.7 million to victims of the London Capital and Finance mis-selling scandal

More than a hundred investors in failed London Capital and Finance (LCF) mini bonds have received pay outs from Financial Services Compensation Scheme (FSCS) at an average of £20,000 each.

The FSCS has paid out £2.7 million to 135 LCF customers in relation to 151 failed mini-bonds, it said in a statement.

Pay outs were to investors who put money into LCF mini bonds via a transfer from their stocks and shares Isas. The FSCS has made these payments automatically, without the investors needing to apply for compensation.

Investors received compensation because arranging a transfer out of a stocks and shares Isa is a regulated activity, meaning it is covered by the FSCS if, as in the case of LCF, something goes wrong. Usually mini-bonds, which are high-risk and unregulated, are not an FSCS protected investment.

The Financial Conduct Authority (FCA) ordered LCF to stop promoting the mini-bonds and deemed the investments ineligible for Isas in December 2018.

The following month LCF entered administration.

ISA investors in LCF mini bonds who have not received a letter from FSCS by 24 February 2020, are invited to provide evidence to the FSCS about their claim.

Around 11,600 bondholders purchased 16,700 bonds from LCF worth £237 million, however only Isa investors have so far been told there are covered by the FSCS.

The FSCS has concluded some customers were given misleading advice by LCF and so have valid claims for compensation. In relation to advice claims, the FSCS statement said it is “continuing to review the evidence we hold”.

At this stage, non-Isa mini-bond investors do not need to submit a claim to FSCS, which will provide a further update by the end of March 2020.

Caroline Rainbird, chief executive of the FSCS, says: “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.

“The 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.”

A mini-bond is essentially an IOU issued by a company to an investor, in exchange for a fixed rate of interest over a set period of time. At the end of this period, the investors’ money is due to be repaid.

Mini-bonds typically offer high returns and this reflects the much higher risks involved compared to other types of investments. A business does not generally have to be regulated by the FCA to issue mini-bonds.

From 1 January 2020, it is against FCA rules to promote ‘speculative mini-bonds’ to retail consumers, unless they are considered to be ‘sophisticated’ or have a high net worth.

An FCA statement says: “You should think carefully before investing in a mini-bond, and not invest any money you can’t afford to lose.”

This article was originally published in our sister magazine Moneywise, which ceased publication in August 2020.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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