12Jan

A new HM Treasury scheme could give new hope to customers of a prominent mini-bond firm which collapsed in 2019.

The firm had 11,600 customers at the time of its collapse, who had collectively invested £237 million. Many customers incorrectly believed they were investing in low-risk vehicles, and others claim to have been misled as to whether the firm, and its products, were regulated by the Financial Conduct Authority; and whether they were protected by the Financial Services Compensation Scheme.

A recent independent report – commissioned by the Treasury and led by High Court judge Dame Elizabeth Gloster – heavily criticised the FCA for its failure to supervise the firm effectively, and this new Treasury scheme has been reported as having been introduced in response to the findings of that review. Essentially, the scheme will consider whether it is appropriate to make additional one-off compensation payments to bondholders in certain circumstances.

There are already three avenues that customers of the firm could pursue in their quest for compensation:

  • Legal action – an action has been launched by the administrators of the firm but the best-case scenario here might be that bondholders could recover 25% of their investment
  • The Financial Services Compensation Scheme – mini-bonds are not a regulated product, so normally there would be no FSCS protection for investors. However, the Scheme has indicated it can pay compensation to investors in certain cases, such as where they received regulated advice to invest in mini-bonds, or where they invested in their bonds after making a transfer from a stocks & shares ISA
  • The FCA complaints scheme – investors can make a complaint to the FCA’s complaints scheme, on the grounds that they may have suffered loss as a result of the regulator’s negligence

Economic Secretary to the Treasury John Glen MP said:

“Taking into account the various channels through which people affected can seek compensation, the government will… set up a scheme to assess whether there is a justification for further one-off compensation payments in certain circumstances for some LCF bondholders.”

The Treasury is also consulting on whether to make the issuing of mini-bonds a regulated activity.

Scott Robert can help your firm prepare for the world of FCA regulation, from the application process to day-to-day requirements