FCA mini-bond probe puts 14,000 investors on ice
Around 14,000 mini-bond owners are in limbo after a probe by the Financial Conduct Authority (FCA), the City regulator, froze the assets of London Capital & Finance (LCF), a savings and investments firm.
LCF had offered a mini-bond and fixed-rate Isa paying 8pc returns.
However, the FCA launched an investigation this week and told the firm to pause all its regulated activity.
On Dec 13, the watchdog had told LCF to pull all its marketing material for its fixed-rate Isa and mini-bond. It said the marketing was “misleading”.
LCF said that no borrower has ever defaulted on one of its loans and it hoped to get back to business soon.
Mini-bonds offer attractive returns but are risky. Unlike retail bonds, mini-bonds are unlisted, so their owners cannot sell them before their maturity date.
Investors also have no protection under the Financial Services Compensation Scheme, which pays out when savers lose their money, so there is no guarantee of getting any money back if anything goes wrong.
Mini-bonds can fail dramatically. In 2015, investors lost £7m when Secured Energy Bonds failed. Providence Bonds collapsed the following year.
Mini-bond providers do not have to publish full prospectuses on their deals and their marketing material often lacks detail.
Mateusz Malek, of investment firm Killik & Co, said: “It shows that maybe now the regulator is looking into some of these providers and tightening the screw a little bit.”
There is little certainty on what happens next for LCF bondholders. The FCA gave no promises that investors would get their money back. It said it will publish an update “when it is appropriate”.
LCF said it would write to its bondholders soon and would publish updates on its website “whenever there is a significant development”.