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Govt announces £120m LCF compensation scheme

Treasury minister John Glen today announced a £120m government-backed compensation scheme for LCF mini-bond victims which will pay up to 80% of losses up to a maximum of £68,000.

He said the government would establish a scheme that would be available to all LCF bondholders, including those who have not already received compensation from the Financial Services Compensation Scheme.

Some 11,625 investors lost savings worth a total of £237m when LCF collapsed with the majority so far not compensated by the FSCS due to questions about whether their investments were regulated or not.

 

Mr Glen, economic secretary, said the government-funded scheme was being set up due to “the unique and exceptional nature of the situation concerning London Capital & Finance (LCF).”

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The government scheme will provide 80% of LCF bondholders’ initial investment up to a maximum of £68,000. Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation payable.

The scheme will be available to all LCF bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS) and represents 80% of the compensation they could have received had they been eligible for FSCS protection, which is capped at £85,000.

Mr Glen said: “This has been a very difficult time for LCF bondholders, many of whom are elderly and have lost their hard-earned savings.

“It is an important point of principle that government does not step in to pay compensation in respect of failed financial services firms that fall outside the Financial Services Compensation Scheme.

“However, the situation regarding LCF is unique and exceptional and the government has decided to establish a compensation scheme for LCF bondholders in this instance. The scheme appropriately balances the interests of both bondholders and the taxpayer and will ensure that all LCF bondholders receive a fair level of compensation in respect of the financial loss they have suffered.”

The FSCS has so far paid out £57m to around 2,800 LCF bondholders, about a quarter of those who lost money. It has been considering the remaining cases.

Around 97% of all LCF bondholders invested less than £85,000 and therefore will not reach the compensation cap under either the government scheme or the FSCS, Mr Glen said.

Mr Glen said the government expects to pay out around £120 million compensation to around 8,800 people in total and to have paid all bondholders within 6 months of securing the necessary primary legislation, which it will bring forward as soon as parliamentary time allows.

The FCA was roundly criticised for its handling of the LCF fiasco by the Dame Gloster Report into the collapse.

• Editor’s note: 3.45 pm / 19.04.21. The number of LCF victims and the total amount lost have been updated in line with the latest government figures. Both changes are modest.


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