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Government orders FCA inquiry into LC&F

The Financial Conduct Authority (FCA) has been ordered by the government to launch an independent review of how it handled the collapse of London Capital & Finance, the investment firm at the centre of a financial scandal.

LC&F sold £236m worth of bonds which promised returns of 6.5% to 8% a year, but the company has collapsed with more than 11,000 investors expected to receive little more than a fifth of their money back.

The board of the FCA has agreed to subject itself to an independent investigation, which will examine the FCA’s supervision of LC&F, and the regulation of the “mini-bonds” at the heart of the scandal. The review follows a demand by Nicky Morgan MP, chair of the Treasury Select Committee. She said: “The FCA and the Treasury must think innovatively about how the investigation can report and publish as quickly as possible. Investors will want answers.”

LC&F is also under investigation by the Serious Fraud Office, which two weeks ago arrested and later released four individuals in the Kent and Sussex area as part of its probe.

The LC&F products were structured as “mini-bonds” that carry zero protection from the Financial Services Compensation Scheme, but which have in recent years been heavily promoted to investors. The investigation will determine if mini-bonds should come under the supervision of the FCA – and may also qualify for protection under the Financial Services Compensation Scheme.

Read Smith& Williamson - Joint administrators' Report and Statement of Proposals