The FCA is conducting an investigation into the affairs of London Capital & Finance Plc (LCF).
In addition, the FCA has imposed certain requirements on LCF including:
- It may not (without the prior consent of the FCA) deal in any way with its assets, including the money held in its banks accounts.
- It must cease conducting all regulated activity.
Previously, on 13 December 2018, the FCA announced that it had directed LCF to withdraw all of its existing marketing materials in relation to its Fixed Rate ISA or Bond.
The FCA considers that it is appropriate to publicise the fact of its investigation into LCF now, as a result of other public actions taken by the FCA and in anticipation of legitimate queries from investors regarding the firm.
Will I get my investment back?
The FCA’s work in relation to the firm is ongoing, but it is aware that investors are keen to receive details on the progress of this work and the status of the firm. The FCA will publish updates on its website, when it is appropriate to do so.
What action is the FCA taking against LCF?
The FCA directed LCF to withdraw all of its existing marketing materials in relation to its Fixed Rate ISA or Bond.
Following this intervention, the FCA required LCF to cease all regulated activities and not to dispose of any of its assets without prior consent of the FCA.
The FCA’s Enforcement division are conducting further investigation. The FCA continues to work with the firm and relevant external stakeholders to take all appropriate steps.
What is a mini-bond?
A mini-bond is an unlisted debt security, typically issued by small businesses to raise funds.
Mini-bonds can be attractive to investors because of the interest rates on offer. However, prospective investors need to understand the associated risks. Mini-bonds are usually illiquid as they are not easily traded, unlike listed retail bonds, which they are often compared to. They can also be high risk, as the failure rate of small businesses can be high. Additionally, as with other corporate bonds, there is no Financial Services Compensation Scheme (FSCS) protection if the issuer fails.
Issuing mini-bonds is not a regulated activity, so firms issuing mini-bonds do not need to be authorised by the FCA. However, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with FCA rules, and that the financial promotion is fair, clear and not misleading. This means, for example, that risks are appropriately communicated.
LCF is the issuer of mini bonds it states it uses to make loans to corporate borrowers to provide capital for further investment. The FCA believes there are approximately 14,000 customers invested in its bonds.
Does LCF need to be authorised?
Firms are required to be authorised by the FCA if they undertake any of the regulated activities listed in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (the Order). Authorised firms are subject to a set of overarching principles and rules issued by the FCA. These principles and rules have to be followed when an authorised firm is carrying on regulated activities in the UK. The Order excludes certain activities from its scope.
Issuing mini-bonds does not normally involve the carrying on of a regulated activity. Therefore, LCF did not need to be authorised to issue the mini bonds but did need to be authorised to issue the promotion of the mini bonds.