Watchdog mulls probe following London Capital & Finance collapse

The City watchdog is considering launching an investigation into regulatory failures over the collapse of investment firm London Capital & Finance.

In a letter to the House of Commons Treasury Committee, the head of the Financial Conduct Authority (FCA) admitted there are “significant questions” about the adequacy of regulation relating to the sale and marketing of retail mini-bonds following LCF’s failure.

FCA chairman Charles Randell wrote: “It is important that we address any inadequacies in the existing regulatory system without delay.

“As a result, we will need to carefully consider the scope and phasing of any investigation we may undertake very carefully.”

LCF went into administration at the end of January after having its operations frozen by the FCA amid accusations of mis-selling.

The company had already amassed £236 million after advertising tax-free individual savings accounts (Isas). However, it was in fact a high-risk bond scheme with an interest rate of 8% and left more than 11,000 investors facing hefty losses.

LCF did not have approval to advertise the product as an Isa.

Tory MP Nicky Morgan, chairwoman of the Treasury Committee, then wrote to the Treasury and the FCA demanding the regulator look at carrying out an inquiry.

She said the FCA needs to examine whether it acted fast enough against LCF and whether other firms may also be using similar tactics which might be misleading to consumers.

The watchdog will convene this week to decide whether to investigate.

For its part, the FCA ordered LCF in December to withdraw its promotional material for its mini-bonds after finding that marketing was “misleading, not fair and unclear”.

But while the promotional material is regulated by the FCA, mini-bonds themselves are unregulated.

Mrs Morgan wants the FCA to look at whether mini-bonds should be brought under its supervision.

LCF’s largely elderly customer base fear they may not be able to recoup the money they invested.

Bondholders may get just 20% of their money back, according to LCF’s administrators.

The Financial Services Compensation Scheme (FSCS) said the mini-bonds issued by LCF were not regulated and therefore not protected by the scheme and it is not accepting claims against the firm.

The Serious Fraud Office (SFO) has already opened an investigation into LCF.