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Collapsed mini-bond provider appoints adminstrators after FCA investigation

Cyber SecurityCollapsed mini-bond provider London Capital and Finance has appointed administrators after falling into default.

In December, the FCA ordered LCF to withdraw its promotional materials of the bonds, which it deemed “misleading, not fair and unclear.”

The FCA was concerned that the bonds were marketed as eligible for Isa status, when in fact they were not, and announced it would be conducting an investigation into the firm.

The regulator also told LCF all regulated activity, ruling that it may not deal in any way with its assets..

Smith and Williamson’s Finbarr O’Connell, Adam Stephens, Henry Shinners and Colin Hardman have been appointed as joint administrators, the firm announced today.

The issuing of mini-bonds – or unlisted debt security – is not a regulated activity, and therefore does not need FCA authorisation.

However, the marketing of the products does have to fall in line with the regulators’ standards.

The administrators will attempt to maximise the returns to bondholders, working with LCF’s borrowers, staff, the security trustees for the bondholders, the FCA and other stakeholders.

Some 14,000 LCF’s mini-bond holders were affected, Smith and Williamson says, who were UK tax-payers falling into the category of either high net worth individuals, sophisticated individuals, self-certified sophisticated individuals or restricted investors.

The FCA said that affected investors are unlikely to have access to the Financial Services Compensation Scheme, in the case of LCF’s default, as issuing mini bonds is not a regulated activity.

However, it added that it is ultimately up to FSCS to determine eligibility. The FSCS may only compensate protected types of claim.

The FSCS could compensate clients only if the defaulting firm involved protected claims and all other relevant criteria are met.

Stephens says: “We are working to ensure that they are all contacted directly and urgently so that they are aware of the situation.”

The administrators has set up a dedicated call center and email system to get in touch with the bond holders.

Stephens says: “We would ask the bondholders to bear with us in these early days as there is much to do.”

O’Connell says: “We are especially focusing on the various loans made by the company to borrowers. At this juncture, regrettably we are not in a position to return any monies to bondholders.”

In December, the FSCS declared another mini-bond manager, Independent Portfolio Managers, in default, which affected some 2,000 clients.

Former IPM clients who thought they were eligible for compensation were encouraged to make a complaint.

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