The UK Financial Services Compensation Scheme (FSCS) said it has, so far, only been able to protect 159 London Capital & Finance (LCF) bondholders.
The lucky few are the those who switched from stocks and shares Isas to LCF bonds and they will receive compensation by the end of February 2020.
But they represent just 1.3% of the 11,600 people who were missold and invested a total of £237m ($310.8m, €279.2m).
The lifeboat scheme added that it won’t be able to compensate 283 other victims because they dealt with LCF before it was authorised to carry out financial service business on 7 June 2016.
The FSCS explained that issuing these types of financial products is not a regulated activity and not within its protection remit; and, as a result, only those who received misleading advice will be eligible for compensation.
A very fine line
The central issue surrounding the LCF mis-selling scandal encompasses the unregulated promotion of mini-bonds and the provision of inaccurate information to investors.
“Whilst the FSCS acknowledges that many customers were given incorrect information about investing in LCF bonds, being given incorrect information on its own does not constitute misleading advice,” the scheme added.
“For that reason, the FSCS believes many LCF customers are unlikely to be eligible for compensation on the basis of misleading advice.”
A spokesperson for the FSCS told International Adviser that it is still reviewing emails and phone calls from victims.
IA reached out to the Financial Conduct Authority (FCA) to ask whether inaccurate information provided by a regulated firm should be considered grounds for regulatory action, but it referred the matter to the FSCS.
Not good enough
One of the bondholders deemed the move as “unfair and unacceptable” and said they will take the matter forward.
They told IA: “We will continue to fight as a group to prove it [was a regulatory failure] via the FCA independent investigation.
“They have knowingly authorised fraudulent directors and ignored boiler rooms cold calling innocent investors. A 90-page report of fraud and money laundering has been submitted.
“This is bad news for many bondholders; however, we will use this as strong political leverage. We are already preparing another letter to send to our MPs.
“The fact that the [FSCS] catches some bondholders and not others needs to be strongly communicated to government officials. This is unfair and unacceptable,” they added.
Disappointing outcome
Caroline Rainbird, chief executive of the FSCS, said: “I regret that LCF investors impacted by the firm’s failure have been waiting several anxious months to find out whether or not they may be eligible to receive compensation from FSCS.
“In reaching this stage, it was essential we carried out a thorough factual and legal analysis. To assist our ongoing investigations, we have received over 7,000 questionnaires and obtained thousands of telephone recordings and a vast number of emails.
“We have also taken legal advice.
“I appreciate that the initial decisions and outlook we are announcing today are likely to be disappointing to many LCF customers.
“We are, however, working as quickly as we can to establish a suitable process for determining customers’ claims, and expect to be in a position to start this process in the next few weeks.”
The lifeboat scheme added it will need to review advice claims – which are likely to make up most of them – on a case-by-case basis to determine whether misleading advice was given.
If that is proved to be the case, other LCF bondholders could be eligible for compensation. But that might take some time.
