The Government has launched an investigation into both the investment firm London Capital & Finance (LCF) and finance watchdog the Financial Conduct Authority (FCA).
It comes after the collapse of LCF in January, costing 11,500 investors more than £236 million in savings.
The investment firm dealt in high-risk ‘mini-bonds’, which, unlike retail bonds, are not currently regulated or tradeable on an exchange.
According to reports, LCF promised investors profits of up to 11 per cent, marketing the bonds as Fixed Rate ISAs, but administrators warned that savers could now get as little as 20 per cent of their total capital back.
The Government said Dame Elizabeth Gloster – a distinguished barrister and High Court judge – will lead the investigation into the practices at LCF, as well as the regulatory arrangements currently in place for the issuance of these types of investments.
Commenting on the appointment, the Economic Secretary, John Glen, said: “We urgently need to get to the bottom of the circumstances around the collapse of LCF.
“Dame Elizabeth will bring her vast experience and rigour to this important investigation, which will help ensure this type of thing doesn’t happen again.
“The Treasury will also be looking at how the current regime for these investments works, so customers are properly protected and the UK’s financial system can continue to be one of the safest in the world.”
Earlier this month, it was reported that the Financial Services Compensation Scheme (FSCS) would “explore whether there are grounds for compensation”. Since LCF is an unregulated firm, investors cannot go through the usual channels to secure compensation. The FSCS added that investors should register on its website for updates of its investigation.
“By registering with us they will get regular updates on our investigation and this will be the best way for them to hear whether we believe there are grounds for compensation,” said the FSCS.
It added: “This is a highly intricate case though, so we expect our investigation may take some time.”
Seamus Smyth, Head of Litigation and Arbitration at Carter Lemon Camerons, said: “The statement by John Glen, Economic Secretary, that said the Gloster enquiry will ‘ensure that this does not happen again’ is very optimistic.
“Sadly, punters have always been and will continue to be attracted at their peril to investments which to others appear too good to be true.
“Unfortunately, the best time to seek advice about the investment is before, not afterwards. It is usually money very well spent.”
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