London Capital & Finance (LCF) investors are to get 80 per cent of their money back after the Treasury stepped in to compensate bondholders who lost out after the collapse of the mini-bond firm.
More than 11,000 LCF investors were left with £237m in losses when the mini-bond provider entered into administration in January 2019.
The Financial Services Compensation Scheme (FSCS) has paid out more than £20m in redress for customers who it believes had bad advice but has stopped short of further payments.
The high court backed its policy last month.
The Treasury has instead stepped in to create its own compensation scheme for LCF bondholders.
The government will establish a scheme that provides 80 per cent of LCF bondholders’ initial investment up to a maximum of £68,000.
The government expects to pay out around £120m compensation to around 8,800 people in total and to have paid all bondholders within six months of securing the necessary primary legislation.
Where bondholders have received interest payments from LCF or distributions from the administrators, Smith & Williamson, these will be deducted from the amount of compensation payable.
The scheme will be available to all LCF bondholders who have not already received compensation from the FSCS and represents 80 per cent of the compensation they could have received had they been eligible for FSCS protection, which is capped at £85,000.
“This has been a very difficult time for LCF bondholders, many of whom are elderly and have lost their hard-earned savings, John Glen, economic secretary to the Treasury, said.
“It is an important point of principle that government does not step in to pay compensation in respect of failed financial services firms that fall outside the FSCS.
“However, the situation regarding LCF is unique and exceptional and the government has decided to establish a compensation scheme for LCF bondholders in this instance.”
The FCA said it was continuing to investigate the circumstances surrounding the sale of mini-bonds issued by LCF.
It said it has identified investors who were given incorrect information in these direct communications with the FCA which may have led them to conclude their investment would be safer than it was.
The City watchdog said a “small number” of investors could get ex gratia payments if it concludes that they fall into this category.