The Financial Services Compensation Scheme (FSCS) has announced that it will be closing the London Capital & Finance (LCF) compensation scheme that it has been administrating on behalf of the government on 31 October 2022. 

The lifeboat fund said that since it began offering compensation to bondholders on 25 November 2021, it has been able to successfully pay 99.5% of eligible customers.

In total, £115m has been paid out in compensation, it said.

It added that it had a "small number" of outstanding claims left to pay where it has requested information multiple times without reply, or where the bondholder has passed away and it has been unable to locate their next of kin.

"We may be able to pay these claims in exceptional circumstances after 31 October 2022. However, as the government scheme is closing, it may take us longer to process these claims and pay compensation."

It said that those customers in receipt of a cheque will still be able to cash it after 31 October 2022, as long as it is cashed within six months of the issue date.

In August this year, the FSCS called on the families of deceased customers who lost money in the collapse of LCF to get in touch with the lifeboat fund as the scheme neared closure.

Background

Some 11,600 bondholders — many of whom were first-time investors or retirees — lost their savings when they bought unregulated minibonds from LCF, which fell into administration on 30 January 2019. The FSCS declared it had failed on 9 January 2020.

LCF was authorised by the UK financial regulator but the products it sold were high-risk and unregulated, meaning the bulk of customers, who invested £237m in total, were unable to seek compensation from the FSCS.

The Financial Conduct Authority (FCA) came under heavy criticism over its handling of the LCF scandal, with the Treasury Committee calling on the watchdog to be more "interventionist".

In November 2021, the FCA said it was set to radically overhaul its processes and procedures with "significant and necessary changes" following independent reports criticising its handling of the LCF and Connaught fund scandals which saw investors lose millions of pounds.

In December 2021, FCA chief executive Nikhil Rathisaid there is still "learning" to do regarding the FCA's application authorisation process while addressing MPs at the Treasury Select Committee.

He acknowledged that allowing a firm "which is not meeting the standards" into the market can cause significant problems further down the line.

"We saw the case with LCF that a small firm can do a lot of harm," said Rathi, highlighting challenges the regulator faces when approving companies seeking to enter the market.