Almost 300 London Capital & Finance (LCF) bondholders will not be able to claim compensation from the Financial Services Compensation Scheme (FSCS) as they dealt with the business before it was authorised in June 2016.
However, the FSCS said it would protect the 159 bondholders who switched from stocks and shares ISAs to LCF bonds. The FSCS said it would pay compensation to these customers by the end of February 2020.
However, it said it was unable to protect the 283 bondholders who dealt with LCF before it was authorised to carry out financial services business (on 7 June 2016).
The body maintains that the act of issuing mini bonds was "not a regulated activity", and is therefore not something FSCS protects, it has concluded there will be some customers who were given "misleading advice" by LCF and have valid claims for compensation as a result.
However, the body said it expected many customers will not be eligible for compensation on this basis. Claims will start to be reviewed in the first quarter of 2020.
FSCS chief executive Caroline Rainbird 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 said it had investigated many alternative possible bases for claims. About 11,600 bondholders purchased 16,700 bonds from LCF worth £237m.
Expanding the 'regulatory perimeter'
EU review to be completed this year
Part of raft of proposals to increase visability of SRI to retail investors
Passive equity funds ‘consistently’ outperforming active counterparts
Could reduce annual losses by up to £451m
On or around 30 January
Deadline for nominations is 17 January
It’s The Pro Adviser Podcast
'Accelerate your evolution today'