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Mini-bond investors did receive advice, FSCS confirms

The Financial Services Compensation Scheme has confirmed that some investors in the collapsed mini bond firm London Capital and Finance did in fact receive advice, meaning they could be due redress.

Since the collapse of the firm, investigations had begun as investors were concerned that marketing mini bonds was not a regulated activity so they would not be covered by the FSCS.
Regulated advice is, however.
In a statement this morning, the lifeboat fund says: “Following an extensive review of L&CF’s business practices, FSCS believes that Surge Financial Ltd, acting on behalf of L&CF, provided a number of L&CF clients with misleading advice. As this is a regulated activity, this means FSCS protection would be triggered and that there may therefore be customers with eligible claims for compensation.”
The FSCS has it is too early to tell what impact paying out compensation could have on levies, and is asking investors to fill out a questionnaire so it can gather more information on exactly what kind of advice took place and when.

A spokesman says: “Throughout our investigation into LC&F we have been as transparent as possible so that both LC&F investors and our levy payers know where they stand. Having established that there are customers who were given misleading advice and therefore may be eligible for compensation, we now need to determine the full extent of this advising activity.

“We would therefore urge LC&F investors to complete the pre-application questionnaire on our website as this will help us enormously in the next stage of our investigation. We expect this will take a number of months, but we will do all we can to come to a decision as quickly as possible.”

Investors lost more than £200m when LC&F fell into administration

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Comments

There are 32 comments at the moment, we would love to hear your opinion too.

  1. Graeme Pringle 28th June 2019 at 9:44 am

    Can someone explain to me why, if neither Surge Financial Ltd or any of it’s employees were authorised to provide investment advice the FSCS should be picking up the tab?

    If they were providing investment advice then surely they’ll face prosecution and seizure of assets.

    • “Can someone explain to me why, if neither Surge Financial Ltd or any of it’s employees were authorised to provide investment advice the FSCS should be picking up the tab?”

      A regulated firm is covered by the FSCS for any regulated activity even if it wasn’t authorised for that activity. The FSCS confirmed that general principle a few months ago.

      Seems bonkers to me but there we are.

      “If they were providing investment advice then surely they’ll face prosecution and seizure of assets.”

      Who knows. Five men have already been arrested by the Serious Farce Office and then released without charge. A number of assets have already been frozen (as revealed by the Evening Standard).

  2. Julian Stevens 28th June 2019 at 9:49 am

    Did/does Surge Financial hold any PII cover for advising on stuff like this? If not, why not and why did the FCA do nothing about it? Another additional FSCS levy in the pipeline. Thanks FCA.

    • Surge is not regulated to advise on anything. The FCA never do anything about unregulated firms, bar the occasional shut down about half a decade after the event.

      There will never have been such a large FSCS levy. Because now you can throw in, Asset Life, Harewood Associates, MJS Capital, Storefirst, Essex & London Properties, Kijani, Uncle Tom Cobbleigh and at least twenty more I know of that haven’t gone down yet.

  3. So an unregulated firm (Surge) providing the marketing of unregulated products (Mini-Bonds) albeit on behalf of an FCA regulated company (LCF)who however who did not have permission to give retail investment advice has been found to have provided regulated advice which is covered by the FSCS (Keep up!!).

    If advice was provided by Surge during their interaction with the client one question is would this not be an unregulated adviser/firm providing advice not the regulated firm leaving Surge liable? My understanding is that the FSCS is considering this potentially covered by them as they would look at whether a particular regulated activity (e.g. provision of regulated advice) was actually carried out in fact and if it was, then it steps in as the FCA regulated firm owes the client a customer a civil liability in connection with that regulated activity (e.g. it carried out the activity which is in breach of the regulatory rules). In this case as it is regulated FSCS would still potentially pay despite it having stepped outside its permissions.

    However, using the civil liability route surely the first step on this would in the case of advice being given by Surge employees is that it should have the civil liability issue itself which is helpful as Surge is still definitely solvent.

  4. Criteria for claim against FSCS direct from its website “For investment compensation claims, several criteria need to be met:

    there must be an eligible claimant;
    with a protected claim;
    against an authorised firm that is in default.”

    Not sure how Surge Financial fit the bill here. Not listed by FCA as being an authorised firm (past or present).

  5. So anyone can set up a marketing company, target people, tell them it’s a great investment even when they are not qualified or regulated to do so (this is “advice” now is it?), take a 25% “marketing fee”, and put the money in an “investment” where a large chunk of it seemingly disappears such that the police/SFO are investigating. Then regulated businesses pay?

    This is a licence for crooks.

    Also, with the FAMR debating the difference between “advice” and “guidance”, it would appear that we now have a third type of advice.

    • Yep, here I come.

    • As long as you can get an FCA-authorised bunch of crooks to let you, the unregulated marketing company, to give advice “on behalf of” them, even if that FCA-authorised firm is not authorised to give advice to retail investors, then indeed you can.

      It is indeed a licence for crooks. The FCA loves licensing crooks, if it didn’t it wouldn’t do it so often.

  6. As a consumer, why bother to pay a proper legit adviser any more when I can buy any old toot and not lose a penny. This is an absolutely brilliant state sponsored, industry underwritten free put option. This beats Hoover flighst hands down.

    So long IFA suckers, I’m off to place my one way bets and look forward to seeing you all pay.

    In fact I’m going to set up the actual scam/advice service combo I’m goign to use to mug myself with, and then I get to double my money at your expense.

    Have you ever seen anything like it?

    I just get a feeling I believe Vladimir Putin is right.

  7. So, Surge who aren’t authorise to give investment advice market too good to be true LCF mini bonds via Google, generate £59m (25%) in commission on £237m of sales. Having spent £26m in advertising with Google, they net £33m.

    In the meantime, regulated firms pay their fees and get to pick up the bill for the above.

  8. New definition for advice from FSCS claim form:

    Note: Advice does not necessarily mean that a personal recommendation was made to you (e.g. “you should invest” or “I recommend that you invest”). However, there needs to be more than just the provision of information for it to count as advice.

    Examples of information or advice that may have influenced your decision to invest might include comments on the pros and cons, or merits of the investment, such as assurances over the security of the underlying assets of the bonds themselves. Another example might be comments made to you, or value judgements on the quality of the investment (e.g. “this is an excellent product offering a fantastic rate of return”).

  9. The good news is the FSCS will no doubt have alerted the appropriate authorities to ensure the assets of Surge and its directors will have been frozen to allow possible compensation payments to investors…or not.

  10. Are there ever going to be any criminal prosecutions? FCA not fit for purpose, these schemes are blatantly advertised and illegally canvassed but still they do nothing but make sure you get your Gabriel report done in time! More fees to be paid by the innocent whilst te guilty walk away with their pockets bulging.
    How?

  11. Political Convenience They are not paying so why should they care

  12. Every timeshare ever.

    Every buy to let investment ever (whether mortgaged or not)

    Every classic car

    Every old stamp

    Every old coin.

    Every gemstone.

    If the FSCS goes down this route they will have set a precedent which makes consumer protection both absolute and impossible.

    The lawyers are circling – and if the FSCS thinks they are immune – well they are from me, as a levy payer, but from a purported victim, and their legal advisers the FSCS will be in for quite a shock.

    • Oh yes. All those failed investments that were turned down before – Rockingham/ARM/Lifemark. Several Keydata investors.

      Because “cajoling” and “advice” have not changed their meaning in the Oxford English Dictioary since the beginning of time, but the FSCS has changed their meaning, it will be possible to reopen every past case.

      Now, here’s a conundrum. Not only is the guidance and advice debate now irrelevant, and so the IFA community is on the hook for the actions of Pensionwise and the new Guidance Body, but how do you define “non-advised” (as in drawdown)?

      “Can I withdraw £3000 from my plan?”
      “Yes, if you wish”
      “OK, so you advised me I can take money from my plan. That’ll cost you when I waste it.”
      “Er, hang on. I didn’t advise you to take it. I advised you that you could take it.”
      £Sorry, I am vulnerable and I cannot tell the difference between those two sentences. Sounds to me like you are encouraging me.”

      Aaaaaggggh. What ever have they done?

      Obviously Paul will be loving himself on the radio tomorrow. But this could be precipitate of a huge rise in fraud and much more consumer detriment.

  13. So when people DIY … this is advice

    Makes you wonder why we bother to get out of bed in the morning ?

  14. This is a potentially seismic event that could send a pyroclastic flow through the rules.

    Perhaps the most immediate question is whether the FSCS will require material evidence of advice (even if based their rather flexible definition) or whether they will accept testimony from clients. If the latter, it will not take long before word spreads on how to fill out the somewhat leading form (yes, I’ve read it).

    Apart from the financial implications, it would place a very big question mark over the provision of guidance going forward. It will become inherently dangerous because if what the FSCS has accepted as advice (which it legally must for a claim to be paid) is correct then it is much easier to give it than perhaps previously thought. Who wants to take the rather considerable risk? Advisers and PI insurers should be sitting up and taking notice.

    When deciding if advice has been given the FSCS refers to “more than just the provision of information”. It goes on to say that “this is an excellent product offering a fantastic rate of return” is advice. How does that compare to “Our selection of the best funds available to UK investors, with first-class long-term performance potential and low management charges.”? Is there a difference? If there is, would the general public know what it is? Would the average adviser? The latter is how HL describe their ‘Wealth 50’.

    A cynic might suggest that the FSCS, possibly under some pressure from (or even collusion with) third parties, is trying very hard, in way that is not balanced or objective, to find any way in which compensation can be paid on what is a very high profile situation for the regulator and politicians.

    Who is arguing the case for the poor blighters who are going to have to foot the bill?

    • I for one will be taking this up with my MP. Recommend others do too. I am not against investors seeking recompense when there has been an injustice by an authorised and regulated firm but when caveat emptor has been ignored for reasons of greed for that is what has been the case with LC&F and many others offering interest rates 8x those from building society accounts then those that have lost out need to be reminded that when gambling you’re likely to lose the shirt on your back and more.

  15. Can PFS ask FSCS to reconsider or a Judicial review needs to take place.
    It is stretching the bounds of common sense and Legal responsibility that IFA’S should have anything what so ever with the bill for these claims.

  16. These are the questioins the FSCS are asking;

    3. Did you receive any information or advice that may have influenced your decision to invest?

    Note: Advice does not necessarily mean that a personal recommendation was made to you (e.g. “you should invest” or “I recommend that you invest”). However, there needs to be more than just the provision of information for it to count as advice.

    Examples of information or advice that may have influenced your decision to invest might include comments on the pros and cons, or merits of the investment, such as assurances over the security of the underlying assets of the bonds themselves. Another example might be comments made to you, or value judgements on the quality of the investment (e.g. “this is an excellent product offering a fantastic rate of return”).

    Yes
    No

    4. Did this information or advice influence your decision to invest?

    Yes
    No
    Not applicable

    5. If you received any information or advice that influenced your decision to invest, what contact method was used? (Tick all that apply.)

    Email
    Letter
    Telephone
    Personal visit / face to face
    Other
    Not applicable

    6. Was the information or advice you referred to in questions 3 – 5 given before or after you made your investment?

    Before
    After
    Not applicable

    7. Do you have a copy of the email or letter you referred to in question 5 above?

    Yes
    No
    Not applicable

    8. What company do you believe gave you the information or advice you referred to in questions 3 – 5 above?

    London Capital & Finance plc
    Surge Financial

    9. I believe that my responses to the questions above are to the best of my knowledge true and accurate.

    Yes

  17. Man in Black

    If you are reading this, if Surge Financial were not regulated, what is your take on the validity of FSCS paying claims against an unauthorised entity?

    • I’m not MIB (obviously), but the rationale would be that Surge are acting as agent of a disclosed principal (LCF) and so the actions are deemed to be those of the principal. Who is authorised.

      • Julian Stevens 2nd July 2019 at 8:50 am

        Okay, but was LC&F authorised to give advice?

      • @Adam Smith
        LCF couldnt have been principal to Surge Financial. According to the FCA Register, LC&F were principal to London Capital Marketing Ltd and London Loan Brokerage only.

        @ Julian
        LC&F did have Advising & Aranging permissions.

        Like Paul below, which fee block will this fall into?

        • Julian Stevens 2nd July 2019 at 12:11 pm

          Okay, so if LC&F did have advising permissions, did they not hold relevant PII? Maybe they did, but the consequence of them having now gone into administration is (I assume) immediate cancellation of cover. Another example of why PII isn’t fit for purpose and why it should be replaced with a product levy.

          • Fortunately, all PI policies renewing or taken out from 01 July 2019, cannot have a clause that cancels cover when a firm goes into liquidation and they will ahve to accept claims from a third party, i.e. FSCS.

            Whilst this is good news from a levy perspective, time will tell if PI premiums will increase.

  18. ..and further to Justin’s question, is there no recourse for FCA/FSCS to pursue when someone makes money giving advice when they were not authorised to do so??
    And id like to know which FSCS Fee block any claim would fall into, given that there was no authorised intermediation taking place??

  19. Julian Stevens 4th July 2019 at 8:44 pm

    I read elsewhere this afternoon that the FSCS has decided that the regulated intermediary community will have to foot the bill for compensating LC&F investors. The fact that those deemed to have given advice weren’t actually authorised to do so seems to have been conveniently overlooked.

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