Regulator tells clients of failed LCF to sign up for redress scheme

‘This will be the best way for investors to hear whether we believe there are grounds for compensation’

INVESTORS who lost money following the collapse of investment firm London Capital & Finance (LCF) have been told to register with the Financial Services Compensation Scheme (FSCS) as the body explores “possible grounds for compensation”.

The FSCS advice to investors that they should sign up to updates on its website is an about-turn for the industry scheme, which had previously said that LCF’S mini-bond products were neither regulated nor FSCS protected – meaning that customers could not seek compensation claims on grounds of mis-selling.

LCF customers were sold minibonds that promised returns of up to 11pc, but the firm collapsed at the start of the year after raking in £236m from more than 11,500 savers.

The bondholders were told at the end of February by administrator Smith & Williamson that investors were “unlikely” to be eligible for FSCS compensation, but that it was up to the body to determine. It said that the issuing of mini-bonds did not normally qualify as an Financial Conduct Authority (Fca)-regulated activity.

After analysing LCF’S business practices, investment materials and recorded calls with investors, FSCS will investigate whether regulated activities were in fact carried out, which might give rise to a valid claim.

The FSCS also said it needed “to better understand the nature of the relationship” between LCF and Surge Financial, a company that earned large commissions for marketing LCF bonds.

A spokesman for the FSCS said LCF investors were badly let down.

“By registering with us they will get regular updates on our investigation and this will be the best way for them to hear whether we believe there are grounds for compensation,” he added. However, the protection service warned that the case was still “highly intricate”, meaning any investigation was likely to take some time. “We appreciate investors’ need for certainty so we can assure them that we are treating the case with the utmost urgency,” the spokesman said.

Jamie Cooke, managing director at financial services consultancy FSCOM, said: “Perimeters of advice basically only exist for regulated products, which means people don’t get the usual protection in this kind of scenario.

“We all know unregulated products are a big issue and this is an example of why they should be regulated.”