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Investors say FCA use of “mini-bond” term is muddying compensation claim

Investors are angry over the regulator’s use of the word “mini-bond” in connection to the case of collapsed London Capital & Finance which left 11,500 investors with a loss of £237m.

An LC&F investor, who spoke to Money Marketing on condition of anonymity, said LC&F never used the word “mini-bond” and it is unclear why the regulator introduced it. The investor says using the term is causing confusion.

The word “mini-bond” is not an official term. A post on the FCA’s website from 17 May 2019 states: “There is no legal definition of a ‘mini-bond’, but the term usually refers to illiquid debt securities marketed to retail investors.”

Moreover, the post goes on to say that the term “mini-bonds” are typically issued by small or start-up companies as IOUs to raise funds for their business.

FCA: Review into collapsed mini-bond firm should include Isa regime

It says: “Mini-bonds are usually purchased directly from the business you are investing in.” But this was not the case of the LC&F, which acted as a provider, and raised money from investors and then supposedly invested the money in third party companies.

The source says fellow LC&F investors are concerned that the use of the word is not helpful to already convoluted situation and adds another layer of confusion: “If nothing else they should be referring to what people purchased in the marketing material.

“Using the term ‘mini-bonds’ is not helpful and causes rage among LC&F bondholders and confusion to everyone else. The term does not appear in relevant statutes or regulations.

“Furthermore LC&F did not use the term in any of its promotions or information memorandum but rather used the terms ‘Secured Bond’ and ‘ISA’. Hence it is not clear why the FCA has introduced the term ‘mini-bonds’.

FSCS launches registration process for London Capital & Finance investors

“The mere fact the FCA is calling them “mini-bonds” is a cause for concern either because they did not read the marketing literature or because they are trying to damn our claim.”

They said: “The fact the FCA are using a slang phrase is bad form. Surely a regulator body who practices and preaches about rules should at least follow its own lead?”

The FCA suspended LC&F on the grounds the firm broke regulator’s rules of marketing/promotional material that has to be clear, not misleading.

Following the collapse of LC&F, the Financial Services Compensation Scheme issued a statement on its website on 6 March saying it is not accepting claims against the firm.

However, administrators at Smith and Williamson said in their report from the end of March that some LC&F representatives – who were otherwise trained not to provide investment advice – may have in fact given advice in some instances.

In the latest updates from 31 May FSCS said it has been reviewing whether there may be grounds for compensation with both the FCA and the administrators and that this process will take time.

The FCA declined to comment.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. “”Mini-bonds are usually purchased directly from the business you are investing in.” But this was not the case of the LC&F, which acted as a provider”

    Er, yes it was. LCF investors invested directly in LCF and were creditors of the company. Not creditors of any of its subsidiary shell companies or anyone else.

    Basically the investors think that if everyone calls them “secure bonds” (which they weren’t, they were secured loans, which is very different), they are more likely to get compensation.

  2. Who are they claiming against?

    The company has largely gone, and the company was not regulated, and was not part of the FSCS.

    This seems like a matter for the Police and HM Gov to try and get some good press for the Serious Fraud office by recovering some of the monies stolen.

    ‘Secure Bond’ and ‘ISA’ seem obviously excluded, as they were neither regardless of what they claimed to be, so what else could we call them?

    ‘not ISA investments’ seems a little clumsy – perhaps ‘unregulated crap’ should be the proper regulatory term for such things – and perhaps that might sharpen the attention span of investors next time they are offered a ‘too good to miss’ direct investment.

    • And of course “ISA” isn’t an investment per se, it’s a tax wrapper. So to say someone invested in an ISA rather than a bond is rather ridiculous.

  3. Christopher Petrie 10th June 2019 at 1:47 pm

    Rich people who are cross their “guaranteed 8% per year” unregulated investment turned out to be a load of rubbish.

    Like the rich people invested in Equitable Life, their immediate reaction is that ordinary people who had nothing to do with this should bail them out for their own foolishness.

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