London Capital & Finance investors go online for payment of up to £ 68,000 under new government scheme
How the compensation system will work
The new Treasury compensation scheme must first be approved by parliament before it can move forward – something he says he will raise “as soon as parliamentary time allows”. Once approved, here’s how the program will work:
- 8,800 investors could get back 80% of their initial investment, up to a maximum of £ 68,000. This includes bondholders who have since died. The Treasury believes that this level of compensation is “fair” and “adequately balances” the interests of bondholders and the taxpayer. He adds that around 97% of LCF investors had invested less than £ 85,000.
- Any interest or directors’ money you have already paid will be deducted from your compensation amount. If you have received interest from LCF or if you have been reimbursed by the directors of the CFL, Smith & Williamson, this will be deducted from the amount of compensation to which you are entitled under the government program.
- If you have already received compensation from FSCS, you will NOT be reimbursed. If you have already been compensated by the FSCS, you will not have a claim under the new government scheme – no matter how much you received from the FSCS. So far, the FSCS has paid 100% of the population’s initial investment up to its usual limit of £ 85,000. In total, he has paid over £ 57million to over 2,800 LCF bondholders.
Investors are only eligible for FSCS protection for regulated financial activities – so if, for example, LCF had transferred an investor’s money from an Isa Shares and Shares into its bonds or if it had provided to the investor advice regarding their investments. If you meet these criteria, you should have been automatically contacted by FSCS and mailed a check without having to file a complaint.
The FSCS believes that all of these investors have now been indemnified, although you can submit evidence for review if you think you still have a claim. To see the FSCS website for more information. If you submit a claim through the FSCS system and it is successful, then you will not be able to claim through the government system. But if your FSCS application is rejected, you can take your case to the government program once it gets started.
- It is not known if you can claim from the treasury if you owe a payment from the FCA. Investors were also able to complain to the FCA about the information it provided them directly with regard to LCF. The FCA will offer compensation to those who fall into this category and who have not already been compensated by the FSCS.
He added that he will contact affected investors directly to discuss the details of the payments they are to receive and how these will interact with the government’s compensation scheme. It’s unclear if you might be eligible for both plans – we’ll update this story when we know more.
- If you are concerned, you do not need to do anything at this point. The Treasury will release further details on how the system will work “in due course”. He expects to have paid off all bondholders within six months of putting in place the necessary legal framework in parliament.
Beware of scammers who contact you about LCF payments
The Treasury pointed out that you should be wary of the risk of fraudsters posing as services to help you claim. You will NOT need to use a claims management company, lawyer or any other organization to claim – you will be able to do it on your own for free. Check out our guide to 30+ Ways to Stop Scams for help on what to watch out for and what to do if you think you’ve been scammed.
London Capital & Finance entered administration in 2019
LCF sold “mini-bonds” – a type of high-risk investment that are essentially IOUs issued by a company to an investor. The investor receives a fixed interest rate for the life of their investment and will be paid back at the end – but could be left with nothing if the business fails.
In December 2018, the FCA ordered LCF to remove marketing material it called “misleading, unfair and unclear.” His concerns included the fact that LCF bonds were being marketed as ISA-eligible when they were not.
In the same month, the regulator also imposed strict requirements on the company, including bans on exercising a regulated activity and disclosing any financial promotion. LCF entered administration in January 2019 and was declared “stranded” in January 2020.
What is the government saying?
Treasury Secretary John Glen said: “It 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 the government does not intervene to pay compensation to failed financial services companies that do not fall under the financial services compensation scheme.” However, the situation regarding LCF is unique and exceptional and the government has decided to create a compensation plan for LCF bondholders in this case. “
The Treasury also launched today a consultation on the proposals to subject mini-bonds to the FCA regulation.