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Administrative Court grants permission for London Capital & Finance bondholders’ judicial review against the FSCS to proceed


London Capital & Finance was an investment firm which collapsed in February 2019 following one of the UK’s largest alleged frauds against retail investors. Some 11,600 retail investors invested £237m in LC&F before its failure. LC&F was FCA-regulated and many of the investments were advertised as being ISA-eligible. An investigation by the Serious Fraud Office and a lawsuit by the firm’s administrators against those said to be responsible for the alleged fraud are ongoing.

Investors are eligible for compensation from the Financial Services Compensation Scheme (up to the FSCS limit) to the extent that LC&F was carrying out a “regulated activity”. The FSCS has compensated a small number of investors who transferred their existing ISA investments into LC&F, the arranging of such transfers being a regulated activity. The FSCS has also agreed to compensate (up to the FSCS limit) those investors who can show that they received “advice” from LC&F before investing, the giving of advice being a regulated activity.

However, for those who cannot show that they received such advice, the FSCS has refused to compensate them, on the basis that what LC&F was offering was an investment in bonds containing a non-transfer provision, which the FSCS considers to be unregulated. Following the LC&F scandal, it is no longer permitted for FCA-regulated firms to offer non-transferable bonds to retail investors.

Four LC&F bondholders brought a judicial review claim against the FSCS’s decision in April 2020. Permission for that judicial review claim to proceed has now been granted on all grounds. It argues that all investments post-dating 3 January 2018 qualified as regulated investments, or at least the bonds advertised as being ISA-eligible certainly did, so that FSCS compensation should be paid in relation to them.

The case has attracted significant press interest and the grant of permission has been reported in The Times and the FT Advisor.

Jamie McClelland, Tim Johnston and Charlotte Thomas are acting for the claimant bondholders, instructed by Shearman & Sterling LLP.