Mini-bond provider Basset & Gold has collapsed into administration, raising questions for investors and the Financial Conduct Authority (FCA).
The firm, which issued Innovative Finance ISA (IFISA) eligible mini-bonds that financed UK lending platforms and direct loans, is believed to have around 1,800 customers who had collectively invested £36m.
A statement on Basset & Gold’s website yesterday (1 April) revealed that Harrisons Business Recovery and Insolvency has been appointed as administrator of Basset & Gold and B&G Finance, a related company that was marketing and arranged investments in the the bonds.
The directors of Basset & Gold and B&G Finance decided the company was insolvent after money raised was almost entirely invested in payday lender Uncle Buck, which has also entered administration.
This has raised plenty of questions.
Why didn’t the Financial Conduct Authority step in earlier?
The City watchdog has admitted it had historic concerns around the accuracy and fairness of B&G Finance’s financial promotions of the mini bonds.
It said B&G Finance made improvements to its advertising in December 2018 and wrote to all bondholders in January 2019 clarifying that B&G has used ‘the vast majority of bond proceeds to finance a large facility agreement with an FCA-regulated short-term consumer lender’.
No further bonds were issued to retail investors from May 2019.
This all took place at the same time that mini-bond provider London Capital & Finance (LCF) collapsed.
The regulator has been criticised for its inaction over LCF, yet at the same time it also appeared to standby while Basset & Gold ploughed the majority of investor money into a payday lender.
It also raises concerns about the FCA’s approach to wholesale lending. It has banned this in the peer-to-peer lending sector but seems ok with IFISA-eligible, mini-bond providers doing so.
Will investors get their money back?
The administrator has said interest has been paid on time so far. That could now be an issue due to Uncle Buck entering administration.
“Whilst coupon payments and repayments of investments have not been missed up until now, it is inevitable that this will occur some point in the future,” said Harrisons Business Recovery and Insolvency.
“Therefore in order to treat all bondholders equally, the administrators will not be able to arrange the repayment of any investments even if repayment is now, or will shortly be, contractually due.”
Will investors be eligible for FSCS compensation?
Issuing mini-bonds isn’t a regulated activity.
This has meant there have been questions about whether LCF investors can get Financial Services Compensation Scheme (FSCS) redress due to the way the company was set up and because it wasn’t conducting regulated activities.
However, the FSCS has determined that many investors have a good prospect of claiming compensation for the B&G mini-bonds.
This would be through B&G Finance, rather than Bassett and Gold, as it was the regulated entity marketing them.
“This is particular to the way that the B&G mini-bonds were sold and marketed and it is worth noting that the failure of a mini-bond issuer is not covered by the FSCS,” a statement from the FSCS said.
“The FSCS is operationally independent of the FCA and it is the FSCS that will determine whether compensation is payable in each case under the FCA’s compensation rules.
“The joint administrators are providing assistance to the FSCS in this process.”
What happens to the IFISA money?
It is poor timing for IFISA investors, with just days to go before the end of the tax year.
The Bassett & Gold IFISA wasn’t managed directly but was controlled by third-party ISA manager Gallium.
The administrator said it is contacting HMRC and Gallium and will correspond with bondholders once they have completed their investigations.
All eyes will be on the first administrator update and many will hope this doesn’t dent confidence in the IFISA wrapper more widely.