City watchdog slams collapsed bond scheme for 'misleading' promotions

11 October 2023 , 10:22

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£237m of investors' money was trapped when the London Capital and Finance bond scheme collapsed. (Image: PA Wire/PA Images)

The Financial Conduct Authority (FCA) has issued a censure against the collapsed bond scheme, London Capital and Finance (LCF), for its "unfair and misleading" promotions. However, it has refrained from imposing a fine, stating that such a penalty would only divert funds away from the beleaguered investors.

LCF went under in early 2020, failing to meet the payments it had pledged to its bondholders. The company had promised high returns on investments in its bonds, claiming that the raised funds - approximately £237 million at the time of its collapse - were being invested on behalf of the bondholders.

Regrettably, following the collapse, around 11,600 individuals, many of whom were saving for retirement or already retired, were unable to recover their money. While some received payments from the Financial Services Compensation Scheme (FSCS), most were not eligible, prompting the Government to establish a special fund to rescue the savers.

On Wednesday, the FCA stated that LCF's promotions "presented a misleading picture", making its bonds appear far more attractive than they actually were. Investors were not informed about hidden charges and the high risk involved, according to the FCA.

Furthermore, the FCA revealed that LCF used investors' money to finance "seemingly independent comparison websites", which displayed its bonds alongside other investments offering lower rates of return.

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Therese Chambers, joint executive director of enforcement and market oversight, stated: "LCF's use of financial promotion led to bondholders, many of whom were vulnerable, investing in unsuitable, high-risk products."

"We recognise our censure will not provide solace to those investors who lost out. But it is important we set out what went wrong at LCF and how their promotions misled people into parting with their money."

The Serious Fraud Office is currently conducting an investigation to determine whether fraud charges should be brought against the individuals who managed LCF.

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Steve Charnock