FCA censures London Capital & Finance
The Financial Conduct Authority (FCA) has censured London Capital & Finance (LCF) for its “unfair and misleading financial promotions of minibonds” but has not imposed a financial penalty on the firm as it is insolvent.
The mini-bond platform collapsed in January 2019 owing more than £230m to more than 11,500 bondholders. A one-off scheme on behalf of the Treasury has paid out £115m in compensation.
The FCA said that LCF’s promotions made its mini-bonds “appear a far more attractive investment than they were”. It said that investors were not told about hidden charges and the “high-risk and unsustainable nature of the lending being carried out by LCF”.
The regulator also found that LCF used bondholders’ money to fund “seemingly independent” comparison websites to showcase its mini-bonds next to safer investments with a lower rate of return.
This enticed retail investors into putting money into LCF’s high-risk products, the FCA said.
“LCF’s use of financial promotion led to bondholders, many of whom were vulnerable, investing in unsuitable, high-risk products,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA.
“We recognise our censure will not provide solace to those investors who lost out. But it is important we set out what went wrong at LCF and how their promotions misled people into parting with their money.”
The FCA’s statement was taken from its full findings on LCF, which were published today.
It also said that the Serious Fraud Office is investigating LCF as it “may have been involved in knowingly defrauding bondholders”.
The FCA said it decided not to impose a financial penalty as it would only divert funds that the administrators may use for the benefit of bondholder creditors.
An administrators’ update in September revealed that LCF’s secured creditors are set to receive 10 per cent to 18 per cent of the funds owed to them, a significant downward revision from initial estimates.
As a result of the report’s recommendations, the FCA has strengthened its authorisation process and is investing £98m over three years on data analytics to better identify potentially problematic firms.
In 2020, the FCA banned the mass-marketing of speculative illiquid securities – including speculative minibonds – to retail investors.