Compensation paid to LCF bondholders under Govt scheme exceeds £115m
The UK Financial Services Compensation Scheme (FSCS) today published detailed information regarding the payment of compensation to customers of London Capital & Finance (LCF).
Over the past two years, FSCS has delivered two compensation schemes for LCF customers – one for those eligible for FSCS protection, and another one-off scheme on behalf of HM Treasury.
FSCS’s previous use of AI and automation meant that it was able to significantly accelerate the return of compensation to bondholders that fell under the HMT scheme. Within days of Royal Assent, the Scheme was able to automate payments to 70% of bondholders.
As of June 2022, FSCS has now paid compensation for 12,421 bonds under the government scheme, totalling over £115 million. FSCS was able to hit the 20 April deadline for all customers that it had satisfactory evidence for, with less than 50 outstanding cases (where FSCS has requested documents that have not yet been provided).
“We understand and completely empathise with how distressing this situation will have been for LCF bondholders over the past four years. We hope that our work in compensating customers through both schemes has helped to make an extremely difficult and emotional situation just that bit easier”.
Let’s note that the LCF government compensation scheme administration costs are substantial, as they reached £1,644,000, according to FSCS’s annual report that was published today.
LCF was an issuer of mini-bonds, which it stated it used to make loans to corporate borrowers to provide capital for further investment. The FCA’s first supervisory notice raised serious concerns about the company’s promotion and marketing of these bonds to retail investors. Following the FCA’s second notice, LCF soon entered administration on 30 January 2019.
The effect on bondholders, many of whom were elderly customers on fixed incomes seeking better returns on their investments, was catastrophic. A total of 11,625 customers, who had invested a combined £237 million, lost huge amounts of their life savings.