FSCS to start compensating LCF investors this month

After analysing nearly one million pieces of information, the lifeboat scheme said it has started reviewing the individual LCF claims on a case-by-case basis.

The Financial Services Compensation Scheme (FSCS) has set up a specific team to review the cases.

It said that while some customers received misleading advice and so would be eligible for compensation on the basis, it cautioned many investors did not.

FSCS chief executive Caroline Rainbird said: "Having spent time reviewing all of the information we have gathered, I am pleased that we are now in a position to look at individual claims and will start to issue decisions on those claims this month, thereby providing some certainty for LCF customers." 

Unregulated

LCF was a mini-bond issuer and, because issuing mini-bonds is not a regulated activity, it did not need to by authorised by the Financial Conduct Authority (FCA).

When an authorised firm approves a promotion for mini-bonds, however, it must ensure it is in line with FCA rules that dictate the financial promotion must be fair, clear and not misleading. This means, for example, risks must be "appropriately communicated". 

In December 2018, the FCA directed LCF immediately to withdraw its promotional material on the basis the way in which it was marketing its bonds was "misleading, not fair and unclear". Among the regulator's principal concerns was "the fact that LCF bonds were being marketed as ISA eligible when they were not".

In January 2019, Smith & Williamson was appointed to deal with the administration of the firm when it collapsed. There were around 14,000 bondholders with LCF. In March, four people were arrested as part of a Serious Fraud Office investigation into the firm.

Then, last June, the FSCS concluded a number of customers were given misleading advice, making them eligible for compensation.

 

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