The Financial Services Compensation Scheme (FSCS) will start inviting claims against Catalyst Investment group from investors in the ARM Asset Backed Securities life settlements fund by the end of March.
The scheme said Catalyst, which distributed bonds issued by Luxembourg-based ARM to investment intermediaries and IFAs in the UK, may be liable for losses "in many cases".
Catalyst continued to promote ARM bonds between November 2009 and May 2010 after it was asked by the Luxembourg regulator to stop and await a pending authorisation for ARM to issue the products.
The firm was censured by the Financial Conduct Authority (FCA) for ignoring the regulator's orders and for not disclosing to the IFAs and investors the true risks surrounding ARM's uncertain position.
It later revoked the extra levy, saying it expected to be start processing claims against Catalyst slightly later than previously thought and most of the costs should fall into 2014/15.
UK investors invested £54m in ARM bonds, including £17.1m in un-issued ARM bonds, and may lose a significant part of their investment as a result of Catalyst's actions, the FCA predicted.
The FSCS is now finalising the process under which claims against Catalyst will be investigated.
It will then invite all investors who bought ARM bonds to make a claim against Catalyst.
It will also invite those who were advised to invest in the bonds by IFAs in Malta, saying they will be able to claim against Catalyst "in the same way as investors who dealt with UK IFAs".
In January the compensation scheme announced its levy on investment advisers for next year would increase by 34% to £105m, which it partly blamed on the Catalyst failure.
Catalyst, like Keydata, is considered a wholesale intermediary and many advisers believe such firms should not be included in the levy block that includes advisers as the large-scale failures have a disproportionate effect on the amount collected.
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