The FCA has clarified a host of concerns it has over collapsed mini-bond provider London Capital & Finance, and has launched an independent investigation into its failure.
The firm first hit the headlines after being told to cease marketing activity by the FCA in December amid claims it was misleading, with the mini-bonds on offer being marketed as Isa eligible when they were not
In another warning to the firm, the FCA said LC&F gave “undue prominence” to the fact that it was regulated by the watchdog. The firm as a whole was indeed regulated, but promoting mini-bonds is not a regulated activity.
In its annual report today, the FCA details a number of concerns that led it to take action against the business, confirming that it has started an enforcement investigation using both its criminal and civil powers.
The FCA writes: “Our concerns are mainly about the unsustainability of its business model, as it appeared that coupon (interest) payments to existing investors were being funded by new bond issuances. Also, we considered that not all the corporate borrowers to which LCF made loans were unlikely to be able to support the rates of return that LCF advertised.
“Finally, we had concerns that a number of the corporate borrowers had close connections with the individuals who ran LCF.”
However, the FCA notes that a number of the issues it found do not actually fall under its so-called “regulatory perimeter” where it has the ability to intervene.
The regulator has published a report alongside its main annual report today to explain the scope of its powers “to foster understanding and discussion of the limits” of its remit.
As one of its sector priorities for retail investments, the FCA says it will continue to investigate high-risk and complex investments.
It also notes that it is undertaking research on the levels of saving for retirement, and has placed long-term savings and pensions as one of its priorities across the sectors it regulates.