UK Govt unveils compensation scheme for London Capital & Finance bondholders
Details of the scheme to compensate bondholders who lost money due to the collapse of London Capital & Finance have been set out by the Economic Secretary to the Treasury John Glen today.
Due to the unique and exceptional nature of the situation concerning London Capital & Finance (LCF), the government 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 Financial Services Compensation Scheme (FSCS) and represents 80% of the compensation they could have received had they been eligible for FSCS protection, which is capped at £85,000.
The existing Financial Services Compensation Scheme is strictly limited in scope and it is only able to pay out when a relevant regulated activity has been undertaken. The FSCS has considered LCF claims in detail and has been able to protect around 2,800 bondholders, paying out over £57 million in compensation.
Around 97% of all LCF bondholders invested less than £85,000 and therefore will not reach the compensation cap under either the government scheme or the FSCS. The government expects to pay out around £120 million compensation to around 8,800 people in total and to have paid all bondholders within 6 months of securing the necessary primary legislation, which it will bring forward as soon as parliamentary time allows.
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 £237 million.