Thursday 16 January 2020 12:46 pm

FSCS says it is ‘too early to predict’ London Capital & Finance compensation levels

The financial services lifeboat said today it was “too early to predict” how much it would have to pay out in compensation to investors in collapsed mini-bond firm London Capital & Finance (LCF).

Last week, the Financial Services Compensation Scheme (FSCS) said it would protect 159 LCF bondholders who switched from stocks and shares ISAs to LCF bonds.

It said it would review whether other investors in the scheme had a claim for compensation on the grounds they were given misleading advice by LCF.

Read more: Financial services lifeboat says only a handful of London Capital & Finance investors eligible for compensation

Mini-bond firm LCF collapsed in January 2019 owing £236m to more than 11,000 investors.

In its plan and budget for 2020-21, published today, the FSCS’s chief executive Caroline Rainbird said it “will start to review advice claims in the first quarter of 2020” and said: “At this stage it is too early to predict the full impact on the levy”.

The FSCS said its indicative levy on financial firms for 2020-21 was £635m, an increase of £87m on the levy raised in 2019-20.

The body said this increase was largely driven by a rise in the number of complex pensions claims which it said had now overtaken payment protection insurance (PPI) claims by volume.

It said 40 per cent of claims now related to pensions and 20 per cent to PPI.

Read more: First payout to London Capital & Finance investors pushed back

The FSCS said the main causes of pensions claims are “advice – often mis-advice- to transfer out of defined benefit pensions”.

Another major challenge cited by the FSCS was so-called phoenixing – where directors of an insolvent company transfer their business to a new company and continue trading.

The FSCS said its claim handlers had spotted 19 potential cases of phoenixing since September 2019 which were then shared with the Financial Conduct Authority (FCA).

It said a further 117 cases had been identified and shared with the FCA.

Rainbird said compensation claims were expected to rise over the next few years and said the FSCS was already experiencing higher claims costs due to the complexity of cases being submitted.

The FSCS said it was forecasting to process 27,200 claims to the end of 2019-20 and said it expected a similar volume of claims in 2020-21.