FSCS Kicks Off Gov-Funded LCF Compensation Scheme

Around 1000 eligible London Capital & Finance bondholders were contacted by the Financial Services Compensation Scheme (FSCS) with an offer of compensation under a government’s redress scheme.

In an announcement yesterday, the lifeboat system confirmed it had sent out letters this week (beginning 22 November) as it administers the compensation scheme on behalf of the UK government.

The FSCS said bondholders do not need to do anything at this stage and letters will explain what they need to do, the payment terms and some calculation examples. It will also provide further details on how the scheme will operate in due course.

The UK’s rescue fund confirms the government-funded scheme will be “simple and straightforward.” As such, it expects beneficiaries will not need to use a claims management company, solicitor or any other organisation to help them claim.

All eligible bondholders will be contacted by the FSCS by April 20, 2022, with payments expected to follow suit shortly after this date. Then, beneficiaries will have less than five to accept the offer. Otherwise, the government says they will give up their right to compensation unless there are exceptional circumstances.

The UK government expects to compensate about 8,800 investors, or 97 percent of collapsed mini-bond provider’s victims, within 6 months.

The scheme would pay out 80 percent of bondholders’ principal investment – £120 million in total – with up to a maximum of £68,000. But the amount of compensation will be reduced if a bondholder has received interest payments from LCF or distributions from the insolvency administrators, Smith & Williamson.

By comparison, the FSCS has already paid out more than £57 million to reimburse 2,800 LCF bondholders who proved they had been advised by the firm.

LCF investors drop court appeal

Those without evidence of advice were fighting for eligibility of compensation and asked the court to scrap the decision that considered LC&F bonds issued after January 3, 2018 were not a regulated activity. However, they dropped their judicial review appeal in August, citing the rising cost of funding the legal challenge.

Victims of the collapsed mini-bond provider said they cannot afford to pay the FSCS’ £600,000 legal fees if they lose their bid for full compensation.

The affected bondholders say they bought ‘mini-bonds’ from London Capital & Finance only after receiving assurance from the FSCS that their money was covered by the UK’s compensation scheme. As such, the FSCS is accused of giving misleading information over the protection they should expect.

However, the British High Court ruled in March that these investors cannot recover their losses because bonds sold by LCF did not meet the scheme’s conditions for compensation.

At the time, the claimants said the FSCS knew it was stifling the possibility of the appeal going ahead as it refused not to pursue costs against them if their appeal was unsuccessful.