London Capital & Finance compensation scheme comes to a close
The London Capital & Finance (LCF) compensation scheme came to a close on 31 October, the Treasury has confirmed, having paid out £115m to investors in the failed mini-bond provider.
The scheme, administered by the Financial Services Compensation Scheme (FSCS), was launched on 3 November 2021 to compensate investors after LCF fell into administration on 30 January 2019.
Read more: FSCS keeps LCF compensation scheme open past deadline
Almost all eligible bondholders have now received compensation.
The Treasury said that the FSCS may still be able to pay outstanding claims in exceptional circumstances, however, as the scheme has formally closed, it may take longer to process these claims.
Read more: LCF administration fees to pass £9m
The scheme paid 80 per cent of bondholders’ principal investment in eligible bonds, up to a maximum of £68,000.
Where bondholders had received interest on their bonds, distributions from the insolvency administrators, Smith & Williamson, or compensation from the FSCS for LCF bonds, this reduced the amount of compensation payable under the scheme.
Earlier this year, the FSCS extended the deadline for LCF bondholders to make a claim, as it waited for documents from some remaining investors.
The compensation scheme has been described as an exceptional case by legal experts, as it is highly unusual for the Treasury to step in and repay investors.
Thomas Donegan, a regulatory partner at Shearman & Sterling, said that LCF was unusual in the sense that it was a Financial Conduct Authority-regulated firm issuing very unusual bond instruments, holding just £50,000 of capital against a £200m book of exposures.
“LCF is not a case of investment loss and reduced returns – the public’s money has simply all disappeared under the FCA’s nose,” he told Peer2Peer Finance News last year. “All this goes to the unique nature of LCF as a situation.
“Several of the other recent financial scandals involve unregulated firms, or regulated firms out of scope of the FSCS such as payment services firms, which the government will unlikely want to bail out. And failures of authorised firms are expected to be covered by the FSCS. So, I do not see this sort of thing happening very often.”
