Senior MPs demand answers from watchdog over fall of £236m LCF

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THE leader of Parliament’s powerful Treasury Select Committee today demanded answers from the Financial Conduct Authority and the Treasury over the controversial collapse of lender London Capital & Finance.

LCF raised £236 million selling so-called mini-bonds to 11,600 largely elderly savers which it then invested in high-risk ventures ranging from oil exploration to horse stables and a Dominican Republic property scheme. 

As the Evening Standard revealed in January, the money was only invested after LCF had paid a sales agent 25% commission, meaning returns on the loans from the ultimate borrowers would have to be up to 44% for the business model to work.

LCF became insolvent when the FCA launched an investigation in December and stopped it taking any new money. 

However, the Standard subsequently told of how the regulator had been warned about the firm by investment experts in 2015 and 2017, triggering protests from LCF investors who now fear they have lost most of their money.

Speaking of how “distressing” she found the stories of the investors, MP Nicky Morgan, chairman of the TSC, said she was formally writing to the FCA to ask why it had not acted sooner and demand what were the circumstances that made it eventually take action. 

She is also demanding answers from the Treasury of whether mini-bonds should continue to be unregulated by the FCA.

Many LCF customers say they invested in the company’s high-interest bonds because its marketing literature said it was regulated by the FCA. However, the bonds were not, which many investors have said they had not realised.

Shadow chancellor John McDonnell also called for answers about how the LCF affair had been allowed to happen: “Many of the people who put their life savings into these investments will be asking the question: where was the regulator? It is starkly clear that the current system is not working effectively.”

He called for a review of the regulatory system around such investment schemes, which have flourished due to low interest rates on conventional savings, and new rules allowing non-standard investments to qualify for ISAs.  

Finbarr O’Connell at administrator Smith & Williamson has said he may be able to recoup only around 20% of bondholders’ money from the companies who took LCF’s money. Most of that is a £40 million loan to the AIM-listed company Independent Oil & Gas. 

However, barring another quoted company, Atlantic Energy, other firms who received LCF money have failed to convince him they have the funds or security value for LCF to recoup the loans. 

Speaking of his disappointment at this, he said: “If these borrowers had any concerns for the bondholders they would have been rushing to show me they were good for the money.”

Morgan’s statement in full: “The stories of those affected by the actions of LC&F are distressing, so the FCA is rightly investigating its promotional material for being misleading, not fair and unclear.

“However, the mini-bonds that were promoted by LC&F are unregulated.

“I will be writing to the FCA to understand what prompted the regulator to act, and whether it could have acted sooner. I will also write to HM Treasury to understand whether mini-bonds should continue to be unregulated.”

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March 16, 2019 |
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