UK Treasury Launches New Plan to Compensate LCF Victims

On Monday, the UK’s Treasury department announced the government compensation scheme for London Capital & Finance (LCf)’s victims. They said victims were receiving compensation under the Financial Services Compensation Scheme (FSCS).

The FSCS has already compensated approximately £57 million to 2,878 bondholders of the collapsed financial scheme. But the UK government formed a new scheme because of the sheer size and complexity of the collapsed LCF.

Maximum Pay-Out of £68,000

John Glen said the new government scheme would provide 80% of LCF bondholders’ initial investment up to a maximum of £68,000 against the FSCS’s £85,000 protection.

John Glen, the Economic Secretary to the Treasury, detailed in a lengthy official statement.

The government expects to distribute a total pay-out of approximately £120 million to the bondholders within six months of securing the necessary legislation.

LCF issued unregulated non-transferable debt securities, popularly known as “mini-bonds”. They then speculatively invested the funds in several underlying businesses. 

In 2019, the company collapsed and affected close to 12,000 investors who suffered a cumulative loss of £236 million. Only victims who did not receive anything under the FSCS scheme will benefit from the new government scheme.

The scheme also does not compensate bondholders who received interest payments from distributions from administrators or LCF.

Glen wrote that the scheme would be available to all LCF bondholders who had not received their compensation from FSCS. It represents 80% of the compensation they would have received had they been eligible for the FSCS protection.

He also defended the lowered compensation limit detailing that around 97% of all LCF bondholders invested less than £85,000. Therefore, their claim neither touches the cap of the government scheme nor the FSCS.

Glen added that bondholders do not need to do anything at this stage. The government would provide further details on how the scheme would operate going forward.

He said the scheme would be simple and straightforward to navigate.