How the compensation system will work
The Treasury’s new compensation system must first be stamped by Parliament before it can go into effect – something it says will be lifted “as soon as parliamentary time permits”. Once approved, the system works as follows:
- 8,800 investors were able to get back 80% of their original investment up to a maximum of £ 68,000. This includes bondholders who have since passed away. The Treasury Department believes that this level of compensation is “fair” and “fairly balances” the interests of bondholders and taxpayers. It adds that around 97% of LCF investors had invested less than £ 85,000.
- Any interest or monies from the administrators that you have already paid will be deducted from your rebate amount. If you received interest from LCF or received money back from LCF administrators, Smith & Williamson, it will be deducted from the amount of compensation you are entitled to under the government plan.
- If you have already received compensation from the FSCS, you will NOT get any more money back. If you have already received compensation from the FSCS, you will not be eligible for the new system of government – regardless of how much you received from the FSCS. However, the FSCS has so far paid off 100% of the people’s original investment up to its usual £ 85,000 cap. In total, more than £ 57 million has been paid to more than 2,800 LCF bondholders.
The FSCS believes that all eligible investors have now been compensated, although you can produce evidence to verify that you believe you have a claim. Visit the FSCS website for more information. Investors are only entitled to FSCS compensation for regulated financial activities – for example, if they invested their bonds after a transfer from an ISA for stocks and shares, or if they received misleading advice from LCF.
- It is unclear whether you can file a claim with the Treasury Department when a withdrawal from the FCA is due. Investors could also complain to the FCA about information they received directly about LCF. The FCA offers compensation for those who fall into this category and who have not yet been compensated by the FSCS.
It added that it will contact affected investors directly to discuss the details of the payments they will receive and how they will interact with the state compensation system. It’s unclear whether you’re eligible for either program – we’ll update this story as we know more.
- If you are affected, you don’t need to do anything at this point. The Treasury Department will publish further details of the functioning of the system “in due course”. All bondholders are expected to have been paid within six months of ensuring the necessary legal framework in parliament.
Beware of scammers contacting you about LCF withdrawals
The Treasury Department has stressed that you should be wary of the risk of fraudsters posing as services to help you obtain them. You DO NOT HAVE to use a claims management company, attorney, or other organization to file a claim – you can do it yourself for free. For more information on what to look for and what to do if you think you have been scammed, see our guide to 30 Ways To Stop Scams.
London Capital & Finance went into administration in 2019
LCF sold “mini-bonds” – a type of high-risk asset that was essentially debt securities issued by a company to an investor. The investor receives a fixed interest rate for the duration of the investment and will pay back his money in the end – but could have nothing left if the deal fails.
In December 2018, the FCA ordered LCF to remove any marketing material it described as “misleading, not fair and unclear”. Among his concerns was the fact that LCF’s bonds would be marketed as ISA eligible when they were not.
In the same month, the regulator also placed strict requirements on the company, including bans on conducting regulated activities and submitting financial actions. LCF went into administration in January 2019 and was declared a “Failed” in January 2020.
What is the government saying?
Treasury Secretary of Commerce 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 principle that the government should not pay compensation to failed financial services companies that are not covered by the financial services compensation system. However, the situation with regard to LCF is unique and exceptional and the government has chosen to establish it.” a compensation system for LCF bondholders in this case. “
The Treasury Department also launched a consultation today on proposals to bring mini-bonds under FCA regulation.