FSCS Gives Permission for Judicial Review of LCF Investors’ Claims

The UK’s Financial Services Compensation Scheme has given the green light for a judicial review that some retail bondholders asked for in connection with the collapsed mini-bond provider, London Capital & Finance. The application was filed by the law firm, Shearman & Sterling today at the High Court.

The claimants are fighting for eligibility of compensation and asked the court to scrap the decision that considered LC&F bonds issued after January 3, 2018 was not a regulated activity.

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.

The collapsed broker has already promoted its mini-bonds as regulated products. Though, buyers are not be typically covered unless they can show they bought the bonds following bad advice.

"While it is true to state that FSCS protection would cover regulated activities carried out by LCF, we accept these efforts to inform people may have led to confusion about the extent to which our protection extends to these particular mini-bonds," the FSCS said.

Separately, the Financial Conduct Authority today said it continues independent investigation into LCF practices together with the Serious Fraud Office (SFO).

“We are now asking all investors, whether they lost money as a result of their investment into LC&F or not, to complete a questionnaire to give us more information about the circumstances of your investment as well as any potential loss,” the FCA updated on its website.

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The investigations are the result of a financial scandal in which around 12,000 investors suffered major losses following the £236 million collapse of London Capital & Finance (LCF). The investment firm ended up collapsing in 2019. However, a small number of LCF customers have received compensation so far while the vast majority of the bondholders are still waiting to hear if they have any chance of getting their money back.

According to the FSCS’s forecast, it expects to pay up to £44 million to cover the estimated compensation costs for investors who bought the unregulated investment products in the hope of high returns.

To kickstart this process, the FSCS reviewed almost a million pieces of evidence in order to determine, which customers had been given misleading advice by LCF. It has also gained access to an additional 100,000 emails held within LCF’s email server. This extended the time frame to complete the process beyond the original deadline that was scheduled for the end of September.

But whilst some investors would not be satisfied with this extension, the move gives hope to a larger proportion of London Capital & Finance customers who were classified as uneligible for recompense.