FSCS compensation for London Capital & Finance customers triggers court case

Maria Nikolova

The application for judicial review was filed by law firm Shearman & Sterling on Thursday at the High Court.

The UK Financial Services Compensation Scheme (FSCS) has posted a comment regarding a London Capital & Finance court case. An application for judicial review regarding FSCS compensation for London Capital & Finance (LCF) customers was filed by law firm Shearman & Sterling on Thursday at the High Court.

James Darbyshire, FSCS General Counsel, said:

“We appreciate LCF is a complex and sensitive case affecting a large number of investors who are keen to understand our decisions.

FSCS has undertaken a thorough and wide-ranging investigation to determine whether LCF carried out any regulated activities that we might be able to compensate for. This has included significant factual analysis and consideration of some complex legal and regulatory issues.

FSCS has been transparent and cooperative in discussing the legal issues with the investors and will continue to do so. To ensure that the investors’ real concerns are fully addressed, we have taken the unusual step to agree not to seek to enforce any costs order in our favour against the investors.

FSCS is an impartial service and is operationally independent from the financial regulators. FSCS reviews each claim on its individual merits according to the requirements under the rules, which FSCS is legally required to follow.”

As FinanceFeeds has reported, FSCS said in February that it paid just under £2.7 million to 135 LCF customers in relation to 151 bonds. These bonds were invested following transfers out of stocks and shares ISAs.

The Scheme made these payments automatically, without these customers needing to make a claim themselves. FSCS explains that has been able to compensate this group of customers because arranging a transfer out of a stocks and shares ISA is a regulated activity.

LCF entered administration on January 30, 2019, and since then FSCS has investigated many alternative possible bases for claims. Around 11,600 bondholders purchased 16,700 bonds from LCF worth £237 million.

The Scheme has explained that it is unable to protect the 283 bondholders who dealt with LCF before it was authorised to carry out financial services business (on June 7, 2016). FSCS will contact these customers to confirm this.

FSCS maintains that the act of issuing mini bonds is not a regulated activity, and is therefore not something protected by FSCS. The Scheme has determined there will be some customers who were given misleading advice by LCF and have valid claims for compensation as a result. However, FSCS expects that many customers will not be eligible for compensation on this basis.

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