FSCS to start reviewing misleading advice claims against London Capital & Finance in Q1 2020

Shortly after the UK Financial Services Compensation Scheme (FSCS) announced its key decisions for claims regarding the London Capital and Finance (LCF) failure, the Scheme has published an update to its Q&A about this case.

Given the public outcry following the FSCS’s statement that it will only be protecting 159 bondholders, the Scheme has offered some clarification on the matter.

FSCS announced last week that it would pay compensation to 159 LCF bondholders who transferred out of stocks and shares ISAs to invest into LCF bonds. The Scheme explains that it can only pay compensation to customers where there is a regulated activity. Arranging a transfer out of a regulated investment, such as a stocks and shares ISA, is a regulated activity.

To determine that this small population of bondholders is protected, the Scheme did not need to review customer interactions with LCF. It just had to be satisfied that the source of the money was an existing stocks & shares ISA.

Separately, FSCS believes that some bondholders received misleading advice from LCF and that these individuals will have valid claims for compensation. Advice is a regulated activity. The Scheme aims to start reviewing these advice claims in the first quarter of 2020.

The remaining bondholders will receive an update by the end of February.

The key difference between “advice” and “information” is that advice, in the context it has been given, includes an element of comment or value judgement that is likely to influence a customer’s decision to invest.

This means the decision about whether a customer was given misleading advice will depend precisely on what was said to the customer and in what context. Each advice claim is unique and will have to be assessed individually and a decision reached based on the information FSCS has.