The Financial Conduct Authority has censured London Capital & Finance for its “unfair and misleading” promotions of minibonds.
The regulator has not imposed a financial penalty on the company because it is insolvent and in administration and the FCA said doing so would “divert funds that the administrators may use for the benefit of bondholder creditors”.
Therese Chambers, joint executive director of enforcement and market oversight at the FCA, said: "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 FCA explained how LCF used financial promotions to market minibonds to investors.
It said the 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 hidden charges and the high-risk and unsustainable nature of the lending being carried out by LCF.
The FCA found 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.
The Serious Fraud Office is currently investigating whether LCF and those responsible for running it were involved in knowingly defrauding bondholders
LCF - what happened?
LCF collapsed in 2019 owing more than £230mn, putting the funds of some 14,000 bondholders at risk.
The FCA’s handling of the collapse was branded “one of the largest conduct regulatory failures in decades” by the Treasury committee, which urged the FCA to implement a change in culture to protect consumers and financial markets.
A report by Dame Elizabeth Gloster published in December 2020 found the FCA had shown "significant gaps and weaknesses" in its policies and practices ahead of LCF's collapse.
The investigation also found the regulator could have done more to protect investors in LCF and its handling of information from third parties regarding the business was "wholly deficient".
The FCA at the time said it was “very sorry for the errors we made in our handling of this case” and that it was committed to implementing each of the recommendations Gloster made in her review.
In 2020, the FCA banned the mass-marketing of speculative illiquid securities - including speculative minibonds - to retail investors.
amy.austin@ft.com
