By Oliver Smith on Friday 22 March 2019
As investors face millions in losses from the London Capital & Finance scandal, Orca CEO Iain Niblock calls out the industry.
Peer-to-peer aggregator Orca Money has called out the “perils” of mini-bonds in the wake of a fraud investigation into the collapse of mini-bond provider London Capital & Finance (LCF).
Some 11,600 bondholders, attracted by LCF’s high interest rate and supposed ISA eligibility, are now facing collective losses of £236m as administrators scramble to recover debts.
“The high-profile collapse... highlights the perils of solely chasing an interest rate,” said Orca CEO Iain Niblock yesterday.
“This is a horrible situation for the savers and investors who were duped into a highly attractive interest rate.”
At its peak LCF lured investors with promised interest of 9% a year, some of which was marketed as a “fixed-rate ISA”, but which it later transpired could not be wrapped in an ISA.
“Mini-bonds are unlisted, unregulated debt securities. They are non-transferable and illiquid. Supporters highlight that they give investors a cheaper way of accessing corporate debt than through retail bonds,” said Niblock.
“But if investors want exposure to non-listed credit investments, P2P platforms are more heavily regulated and have stricter controls on what they can do with the money.
In the wake of its collapse many investors were shocked to discover that mini-bonds aren’t covered by the Financial Services Compensation Scheme (FSCS), so investors cannot claim their money back via the guarantee, nor are they regulated by the FCA (although their marketing is reguated).
“Critics often focus on P2P lending being risky, but mini-bonds such as these seem to get an easier time, despite several high-profile failures in recent years such as Secured Energy Bonds and Providence Bonds, worth £7.5m and £8.15m respectively."
Niblock called for investors to spread their risk, promoting the fact that this is what Orca offers for retail P2P investors.
Although while the P2P industry is regulated by the FCA, investments are not covered by the FSCS.
This week Treasury Select Committee chair Nicky Morgan wrote to the FCA to call for the regulator to launch an investigation into its own response to the LCF scandal.