A Treasury-appointed investigator is to probe potential failings in the regulation of failed mini-bond manufacturer London Capital & Finance, the Financial Conduct Authority (FCA) has said.
In response to a formal request by FCA chair Charles Randell, economic secretary to the Treasury John Glen MP agreed to commission a review of the events leading up to the collapse of LCF, leaving an estimated 11,500 investors in the firm facing their cash being wiped out.
Administrators to the business, which entered liquidation in January, last week said they would likely only recover around 20% of its clients’ assets.
They also said much of the cash appeared to have been ended up in the pockets of a ‘small number of connected people’ involved with the business.
In a statement, Glen said: 'The recent stories of those affected by the collapse of LC&F are incredibly concerning.
'I want to make sure we have the strongest and safest financial system possible. By ordering this investigation, we will better understand the circumstances around the collapse and make sure we are properly protecting those who invest their money in the future.'
While mini-bonds are outside the scope of FCA regulation, the company had aggressively advertised its products for sale via Sipp wrappers, which are regulated. The FCA told the business to cease its marketing in late 2018, shortly before it was ordered to freeze its accounts.
MP and chair of the Treasury select committee Nicky Morgan last month wrote to the FCA asking it to consider bringing mini-bonds under its regulation.
She asked the firm to weight ‘whether firms are using their authorisation in a way that may be misleading to consumers’ and if more should be done to ‘clarify the extent to which an FCA authorisation may protect them from harm’.
Four people have been arrested in a criminal investigation into the collapse.
In a report last week, administrators Smith & Williamson detailed an extraordinary web of alleged deception, saying that a ‘large number of borrowers do not appear to have sufficient assets with which to repay the company’.
In its report the administration team headed by insolvency partner Finbarr Thomas O’Connell said it was probing ‘a number of highly suspicious transactions… we are pressing these people to return those funds to us for the benefit of the bondholders and failing this we will pursue those individuals, as appropriate, for recovery of those sums’.
‘Multi-million pounds’ of cash nominally invested in high interest business loans by the company appeared to have been steered into the personal accounts of director Andy Thomson and Simon Hume-Kendall the chair of the company’s biggest borrower, London Oil & Gas, which owes £124 million.
Elten Barker, a partner of Hume Kendall in London Oil & Gas’ parent business, and Spencer Golding, the proprietor of a horse riding school which also has an outstanding £12.2 million loan, were also said to have personally benefited.
‘The administrators have approached all four parties asking them to pay these monies into escrow for the benefit of LCF bondholders,’ said Smith & Williamson.
‘Simon Hume Kendall and Andy Thomson have agreed to this arrangement and legal documents are currently being drawn up. Spencer Golding and Elten Barker have been asked to enter similar arrangements.’