Compensation arrangement for investors in failed firm clears Commons

·2-min read

Arrangements for a scheme to compensate investors in a failed financial services firm have cleared the Commons.

London Capital & Finance (LC&F) went into administration in January 2019, leaving 11,600 investors facing losses of £237 million.

Measures in the Compensation (London Capital & Finance plc and Fraud Compensation Fund) Bill include arrangements for a compensation scheme for customers who were not eligible for redress from the Financial Services Compensation Scheme (FSCS).

Work and pensions minister Guy Opperman told the Commons: “It is important to avoid creating the misconception that Government will stand behind all bad investments in the future where FSCS does not apply.

“The Government will establish a scheme based on the level of FSCS compensation capped at £85,000 under the FSCS.

“We have looked at the issues carefully and are satisfied that the individual circumstances surrounding LC&F are completely unique.”

He added: “There are other mini bond firms that have failed, but LC&F is the only mini bond firm which was authorised by the FCA and sold bonds in order to on-lend to other companies.

“As the House will know only three Government compensation schemes have been established in the last three decades.”

A House of Commons Library briefing note said the majority of bondholders were not covered by the FSCS as the type of investment they made – a mini-bond – was not regulated.

As a result, by April 2021 the FSCS had paid out £57.6 million to 2,871 bondholders who held 3,900 LC&F bonds.

For Labour, shadow Treasury minister Pat McFadden spoke about the relationship between the greater pension freedoms in recent years and the risks of scams and financial fraud.

He said: “The advent of these freedoms has seen a number of examples where unsuspecting pensioners have been persuaded to transfer their pensions in ways that were not in their interests or even worse have led to fraud and a loss of their hard-earned savings.”

He added: “We will support this Bill because we want to see this compensation paid out, but I hope that the minister will consider some of the questions that we’ve raised as we’ve debated the Bill about the nature of scams and the need to do more to protect consumers.”

The Bill cleared its final Commons hurdle on Wednesday after receiving an unopposed third reading.

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