UK Government Announces New Compensation Plan for LCF Victims

UK Government Announces New Compensation Plan for LCF Victims

April 19, 2021

The United Kingdom’s Treasury department announced on Monday the government compensation scheme for the victims of the London Capital & Finance (LCF), who were till now receiving compensation under the Financial Services Compensation Scheme (FSCS).

The FSCS already distributed around £57 million in compensations to 2,878 bondholders of the collapsed financial scheme. The government, however, formed a new compensation scheme due to the complexity and sheer size of the now-collapsed LCF.

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Maximum Pay-Out of £68,000

In a long official statement, the Economic Secretary to the Treasury, John Glen, detailed that the new government scheme will provide 80 percent of LCF bondholders’ initial investment up to a maximum of £68,000, against the FSCS’s £85,000 protection.

The government is expecting to distribute a total pay-out of around £120 million to the bondholders within 6 months of securing the necessary primary legislation.

LCF was issuing unregulated non-transferable debt securities, popularly known as ‘mini-bonds’, and then speculatively invested the funds in several underlying businesses. The company collapsed in 2019 and affected around 12,000 investors, who suffered a combined loss of £236 million.

The new government scheme will only compensate victims who did not receive anything under the FSCS scheme. Moreover, it will also exclude bondholders who received interest payments from LCF or distributions from the administrators.

“The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80% of the compensation they would have received had they been eligible for FSCS protection,” Glen wrote.

Defending the lowered compensation limit, Glen detailed that around 97 percent of all LCF bondholders invested less than £85k and so their claim will neither touch the cap of the government scheme nor the FSCS.

“Bondholders do not need to do anything at this stage and government will provide further details on how the scheme will operate in due course,” Glen added. “The scheme will be simple and straightforward to navigate.”

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