FSCS starts offering compensation to LCF customers under govt scheme

The UK Financial Services Compensation Scheme (FSCS) has now started to contact and offer compensation to bondholders who are eligible under the government’s LCF compensation scheme.

This week, the Scheme is sending out letters to around 1,000 bondholders. These letters will include details on what they need to do to accept the offer, the payment terms and some calculation examples.

FSCS says it will contact everyone as soon as possible and all bondholders will receive their offer by 20 April 2022.

If you receive compensation for any ISA investments you had with LCF, you can use this to make a single payment into another ISA without it counting towards your annual ISA subscription limit.

If you are eligible for the government scheme and invested in ISA bonds with LCF, you will receive the standard compensation offer letter plus an additional letter from FSCS with the details you will need to show your ISA manager. These letters will arrive separately.

Once you hear from FSCS about your compensation, you can call or email FSCS’s dedicated LCF team with any questions. Their details are included in the letter.

London Capital & Finance (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.

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