Monday 19 April 2021 2:31 pm

Government to pay out £120m to LCF bondholders in new compensation scheme

The Government has announced plans to compensate bondholders who lost out on millions following the collapse of London Capital & Finance.

A new compensation scheme will pay 80 per cent of bondholders’ initial investment up to a maximum of £68,000, the Treasury said today. 

Where bondholders have received interest payments from the collapsed firm or its administrators, these will be deducted from the amount of compensation payable, the economic secretary to the Treasury John Glen said in a statement. 

Read more: High Court rules LCF bondholders not eligible for compensation

The scheme is only available to bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS). 

LCF went into administration in January 2019 at which point 11,625 bondholders had invested around £237m. The High Court last month ruled bondholders could not recover their losses under the FSCS placing additional on the government to stump up more cash. 

Today Glen said that while the government does not usually step in to pay compensation that fall outside the FSCS, the LCF situation is “unique and exceptional”. The scheme will pay out around £120m in total and the Government said it will pay all bondholders within six months of securing the necessary legislation. 

Read more: BoE’s Bailey apologises to investors amid criticism over LCF collapse

Last year a damning report into the scandal heavily criticised the regulator concluding the FCA had failed to properly regulate the firm. 

Glen reiterated this today: “Bondholders have been badly let down by LCF, but they have also been let down by the regulatory system that is designed to protect them.” 

“The government is committed to ensuring the financial services sector is well regulated and consumers are adequately protected, and the Treasury is therefore today launching a consultation on proposals to bring the issuance of mini-bonds into FCA regulation,” he added.