City watchdog orders probe into London Capital failure

The City watchdog has admitted that it should be investigated over failings relating to the collapse of investment firm London Capital & Finance.

The Financial Conduct Authority (FCA) said on Monday that a probe should be carried out by an independent person, looking into whether the regulatory system adequately protects retail purchasers of mini-bonds from unacceptable levels of harm.

In addition, the FCA’s supervision of LCF should be put under the microscope.

LCF went into administration at the end of January after netting £236 million by advertising tax-free individual savings accounts.

However, it was in fact a high-risk bond scheme with an interest rate of 8% and left more than 11,000 mainly elderly investors facing hefty losses.

The watchdog has been under intense pressure from MP Nicky Morgan, chairwoman of the influential Treasury Select Committee, who has been demanding the regulator conducts a probe into its oversight.

The FCA has now asked the Treasury to use its formal powers to direct the watchdog to commission this review, as this will ensure that the review has a “broad and comprehensive remit”.

Economic Secretary to the Treasury, John 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.”

The Serious Fraud Office (SFO) has already opened an investigation into LCF and last week administrator Smith & Williamson found that money invested in the defunct firm ended up in the hands of a small group of people, including its chief executive.

The company’s 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 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.