Investors who lost money in the London Capital & Finance (LCF) debacle are in line for government-funded compensation.
The government is expecting to payout £120 million to investors in the failed scheme, which collapsed in January 2019.
More than 11,600 people invested a total of £237 million with LCF before it collapsed.
8,800 investors in LCF are in line for the compensation payouts, as this represents those who did not qualify for Financial Services Compensation Scheme (FSCS) compensation.
Back in December, an independent review concluded that the Financial Conduct Authority (FCA) had failed to “effectively supervise and regulate” LCF.
In response to the report, former FCA chief executive Andrew Bailey, who is now Governor of the Bank of England, apologised to investors who lost their life savings.
Announcing the compensation scheme, Economic Secretary to the Treasury John Glen explained investors who missed out on other forms of compensation would receive 80% of their lost investment, subject to a compensation cap of £68,000.
However, compensation payments will be reduced in line with any interest received from LCF or money paid back to investors from the administrators.
It will still take some time before investors receive any compensation, with the Treasury expecting to pay out money “within six months of securing the necessary primary legislation, which it will bring forward as soon as parliamentary time allows.”
Also announced with news of the compensation scheme was a plan to bring so-called mini-bonds into the regulatory perimeter, so they will be subject to more effective FCA regulation in the future.
Tim Fassam, Director of Government Relations and Policy at trade association PIMFA, said:
It is right that the Government is stepping in today to provide support to the thousands of bondholders who have been let down by London Capital and Finance, as well as the regulatory system, which was designed to protect them.
While we welcome this move, we have always been clear that any consumer who is in need of compensation has, by definition, received a poor outcome that it would have been better to avoid in the first place.
To this end, we welcome moves by the Government to consult on bringing the issuance of minibonds within the regulatory perimeter; a move which, in combination with the promotion of unregulated investments becoming a regulated activity, will reduce consumer harm in future.