| Link(s): | https://www.fca.org.uk/news/press-releases/fca-censures-london-capital-finance-plc https://www.fca.org.uk/publication/final-notices/london-capital-and-finance-plc-2023.pdf |
Context
The Financial Conduct Authority (FCA) has censured London Capital & Finance (LCF) for its unfair and misleading financial promotions of minibonds. Although the FCA’s announcement contains very little detail of the LCF scandal, the accompanying Final Notice is detailed, at 22 pages. Also, the press release includes brief commentary about the work that the FCA has done (the ‘transformation plan’), and financial investment it has made in strengthening analytics, following the recommendations made by Dame Elizabeth Gloster in her report about the regulation of LCF. The impact on the FCA of the LCF case has been significant and has possibly been responsible for changing the shape of the Regulator completely. This can perhaps be seen as disproportionate, considering how little of LCF’s overall activity was actually subject to FCA regulation.
Key points to note
- The FCA does not consider it appropriate to impose a financial penalty on the firm as it is insolvent and in administration. To do so would only divert funds that the administrators may use for the benefit of bondholder creditors.
- Financial promotions were used by LCF to market minibonds to retail investors. These promotions presented a misleading picture of the minibonds and made them appear a far more attractive investment than they were. Investors were not told about the true nature of the minibonds, including the presence of hidden charges and the high-risk and unsustainable nature of the lending being carried out by LCF.
- The FCA found that LCF used bondholders’ money to fund seemingly independent comparison websites to showcase its minibonds next to safer investments, which had a lower rate of return. This had the effect of enticing retail investors into investing in LCF’s high-risk products. LCF also advertised the minibonds as ISA compatible when this was not the case.
- LCF and those responsible for running it may have been involved in knowingly defrauding bondholders, a case which the Serious Fraud Office is considering carefully, and may have been the cause of much of the losses. The Final Notice contains an extract from the LCF Administrators’ first report which stated “there are a number of highly suspicious transactions involving a small group of connected people which have led to large sums of the Bondholders’ money ending up in their personal possession or control”.
Next actions
None – for information and awareness.