FSCS prepares to open govt LCF compensation scheme
The UK Financial Services Compensation Scheme (FSCS) has just provided an update to investors harmed by the collapse of London Capital & Finance (LCF).
The FSCS explains that the legislation for the government’s LCF compensation scheme has now successfully passed through parliament and received Royal Assent on 20 October.
FSCS is administering the scheme on behalf of the government and it is now making final preparations for the scheme to open.
All eligible bondholders will receive an offer of compensation from FSCS within six months, by 20 April 2022.
FSCS expects compensation payments to begin later in November, and it will provide an update within the next two weeks. Bondholders do not need to contact FSCS or do anything at this stage, and should be wary of any contact promising compensation for a fee – this is likely to be a scam.
There is now a dedicated web page for the scheme at www.gov.uk/LCF-compensation-scheme. There you can find more information including the scheme rules.
LCF was a Financial Conduct Authority (FCA) authorised firm which issued unregulated non-transferable debt securities, commonly known as ‘mini-bonds’, to investors and then speculatively invested the funds received in a number of underlying businesses. LCF went into administration in January 2019 and at the point of failure 11,625 bondholders had invested around £237million.
In May 2019, the government directed the FCA to launch an independent investigation into the events relating to the FCA’s regulation and supervision of LCF. Dame Elizabeth Gloster led the investigation, and her independent review , which the government published in December 2020, concluded that the FCA did not discharge its functions in respect of LCF in a manner which enabled it to effectively fulfil its statutory objectives during the relevant period.
Alongside publication of the report the government announced that it would establish a compensation scheme for bondholders who had lost money following LCF’s collapse. The Economic Secretary to the Treasury announced the details of the scheme in April 2021.
The LCF Compensation Scheme is a government funded scheme designed to compensate bondholders who suffered losses after investing in LCF, which entered administration in 2019.
The government has announced it will establish a scheme that provides 80% of LCF bondholders’ initial investment up to a maximum of £68,000. Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation payable.
The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80% of the compensation they would have received had they been eligible for FSCS protection.