The Financial Services Compensation Scheme has deemed that “mini-bond” provider London Capital & Finance has liability for the advice given to investors by the unregulated marketing firm it used.
Online marketing company Surge acted on behalf of LC&F to target investors and made millions of pounds in the process.
An FSCS investigation found a “number of cases” where Surge “gave advice” to investors. By 8 July some 4,390 LC&F investors filled in a questionnaire asking them to describe “information or advice” they were given.
The FSCS concluded that the marketing firm went beyond providing information to investors and “made comments and value judgements” that involved a significant element of evaluation and/or persuasion.
The lifeboat noted: “Although the definition of advising has been narrowed for Part 4A permission purposes from 3 January 2018, the scope of FSCS protection was not affected and we are still able to protect advice without a personal recommendation.”
The FSCS has said today that while Surge was not authorised, LC&F has liability for the “advising” carried out by Surge because the marketing firm was acting on behalf of LC&F and was under its control.
The statement from the FSCS says: “Surge was not an appointed representative, but we are satisfied that LC&F is liable for Surge in this regard, as Surge was its agent acting with actual or ostensible authority and LC&F is vicariously liable for Surge’s actions.”
Surge had some 40 staff who worked exclusively for LC&F They would present themselves as LC&F when in email, telephone and personal contact with investors, who believed they were dealing with LCF representatives.
The lifeboat fund noted since LC&F has not yet been declared in default and it is not yet accepting applications for compensation.
Claims in relation to “advising” will fall to the investment intermediation levy class Class 2.
The FSCS said it is in the process of designing the claims process in this regard. This may entail obtaining access to further investor communications from LC&F ’s administrators. The lifeboat fund said it is not currently possible to estimate the number or value of potential advising claims.
The FSCS said: “Only advising that happened after LC&F became fully authorised on 7 June 2016 can be protected. We understand that approximately 95 per cent of current bondholders invested after this date.
“Further, in order to pay compensation, FSCS will have to be satisfied that a particular claimant received advice, relied on this when investing, and suffered financial loss as a result.”
It added: “Ongoing investigations could provide evidence that LC&F has liability in connection with other regulated activities.”