The Financial Services Compensation Scheme (FSCS) will administer the £120m compensation payout to London Capital & Finance (LCF) investors.
The government has introduced new legislation which ensures that the FSCS will take charge of compensating LCF bondholders within the next six months.
More than 11,000 LCF investors were left with £237m in losses when the mini-bond provider entered into administration in January 2019.
Last month, the Treasury announced it will establish a scheme that provides 80 per cent of LCF bondholders’ initial investment up to a maximum of £68,000 and said it expects to pay out around £120m compensation to around 8,800 people in total.
Now, the government said that it will provide further details on how the scheme will operate in due course and bondholders do not need to do anything at this stage and will not need to use a claims management company, solicitor or any other organisation to help claim compensation from the scheme.
The government warned all bondholders to be vigilant to the risk of scammers posing as services to help them claim.
Separately to the scheme the FSCS has already paid out £57.6m in redress for customers which it believes had bad advice but has stopped short of further payments.
The high court backed its policy in March, before the Treasury stepped in with the compensation scheme that the FSCS will now administer.
Thomas Donegan, a regulatory partner at Shearman & Sterling, is representing LCF bondholders in their legal case for compensation from the FSCS after it only issued £57.6m compensation out previously. He welcomed the £120m Treasury compensation scheme when it was first announced.
He told Peer2Peer Finance News that the fact the FSCS is administering the compensation scheme does not affect the ongoing legal battle.
“Our clients are still awaiting the outcome of their application for leave to appeal on the judicial review,” he said.
“This appeal relates to the FSCS’s decision not to compensate more investors in LCF under the usual FSCS rules – to which the 80 per cent haircut in the government scheme would not apply.
“The judicial review remains relevant – it concerns over £20m across LCF investors as a whole, as well as being of considerable interest to taxpayers.
“Clearly, the appeal is not impacting the timetable for the government’s welcome steps to establish this new scheme.”
An FSCS spokesperson told Peer2Peer Finance News that the it has been investigating LCF for over two years, and since February 2020 it has paid compensation to over 2,800 bondholders.
“This experience and the data we have gathered during our own investigation means we are best placed to support the government and administer the one-off scheme,” the spokesperson said.
“We are working together with the government through the details of administering the scheme.
“We are a highly experienced and suitable delivery partner and are committed to ensuring that payments are made to all LCF bondholders eligible under the government scheme within six months of the legislation passing through Parliament.”