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FCA details further concerns over mini-bond provider London Capital & Finance

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.

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Comments

There are 9 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 9th July 2019 at 3:39 pm

    If the FCA is the body launching the investigation into its failure. i.e. choosing who shall undertake it [the investigation], then how can it be independent? The only way it could be independent would be if the appointing body were one entirely unconnected with the FCA, i.e. entirely disinterested in the outcome.

    Also, should not para 5 read: We considered that not all the corporate borrowers to which LCF made loans were likely (not unlikely) to be able to support the rates of return that LCF advertised.

  2. Well, it’s all a bit late now isn’t it!

    • Julian Stevens 9th July 2019 at 7:23 pm

      This review will be just going through a few token motions. A representative of the FCA will admit that it failed to do its job properly, shed a few crocodile tears, claim that lessons have been learned, that it’ll (try to) do better going forward, then go back to the office and carry on just the same as before. Isn’t that always the way? History has shown that it manifestly is. Nothing ever changes.

  3. John Stirling 9th July 2019 at 6:24 pm

    I think the investigation is into the failure of LCF not the FCA.

    The bit I love is the quote

    “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.”

    which could be restated as

    “Our concern is that it was a ponzi scheme”

    but then of course the delay in acting to stop the fraud looks rather worse doesn’t it.

    • I was just thinking it sounds like a Ponzi scheme. So they had a concern it might be a Ponzi scheme but didn’t do anything about it? It sounds like as with Keydata it was the ISA eligibility claim they were more interested in.

    • Julian Stevens 10th July 2019 at 8:33 pm

      The investigation is into the failure of the FCA to head off the looming (for three years) failure of LC&F. After all, it was first notified as long ago as 2015 of issues of serious concern on which it ought to have acted but didn’t. Why should the IFA community make any effort whatsoever to blow the whistle on dodgy practices when the FCA is so dilatory in doing anything about them? It’s obviously far more interested in directing its resources (and our money) towards pointless rubbish such as concocting the next iteration of the stupidly stilted client agreements with which we have to burden our clients. A good few heads need knocking together and a few backsides kicked.

  4. Talking of bonds, anyone come across the “football trading bond” from Hylife/Bentley Global? Underlying “investment” is an algorithm relating to gambling on football. 20% per annum income if you invest over £100,000 (lower coupon if you invest less). But don’t worry, the website says that its “FCA section 21 approved” and has an “FCA Security Trustee”. What could possibly go wrong?

    • You can always diversify your investment, HiLife also arrange investments in gemstones with a 10-15% return pa and forex at a fixed 24% pa return.

      If that sounds too risky, they are offering investments in care homes paying 10% or furnished holiday lets whch is described as ‘Great alternative for a pension-scheme’

  5. I have just read an article on how much the FCA spend on supervision and investigating……….the figures are truly eye watering !
    Megan Butler (like those before her) seems quite happy to spend with wild abandonment, with very little reward, barking orders and threatening the industry…and of course collecting her salary, bonuses, and max pension contributions, without any hint of guilt or shame ….

    Appalling…..it really is !

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