London Capital & Finance bondholders to receive £120m compensation

By Daniel Lanyon on Tuesday 20 April 2021

Alternative Lending

Details of a scheme to issue mini-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.

London Capital & Finance bondholders to receive £120m compensation
Image source: HM Treasury/John Glen

More than £120m will be paid out to customers of the collapsed London & Capital Finance platform, according to a plan set out by Economic Secretary to the Treasury, John Glen, yesterday.

London & Capital Finance collapsed two years in January 2019. The Financial Conduct Authority had authorised firm, but its ‘mini-bonds’, which offered attractive rates of interest to investors, while speculatively investing the funds received in a number of fragile underlying businesses, were ultimately worthless. About 11,625 bondholders had invested around £237m by its collapse, with no prospect of getting their money back.

An independent investigation led by Dame Elizabeth Gloster, which the government published at the end of last year, concluded that the FCA was liable owing to its supervision of the business, as well as putting a spotlight on the wider mini-bond market.

Economic Secretary to the Treasury, John Glen said:

“This has been a very difficult time for LCF bondholders, many of whom are elderly and have lost their hard-earned savings."

“It is an important point of principle that government does not step in to pay compensation in respect of failed financial services firms that fall outside the Financial Services Compensation Scheme.

“However, the situation regarding LCF is unique and exceptional and the government has decided to establish a compensation scheme for LCF bondholders in this instance. The scheme appropriately balances the interests of both bondholders and the taxpayer and will ensure that all LCF bondholders receive a fair level of compensation in respect of the financial loss they have suffered.”

The government scheme provides 80 per cent 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 per cent of the compensation they could have received had they been eligible for FSCS protection, which is capped at £85,000.

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