Insolvent credit broker London Capital & Finance (LCF) dodged a “substantial financial penalty” from the U.K. Financial Conduct Authority (FCA) regarding promotions it used to market minibonds to investors.
The FCA censured the firm for its “unfair and misleading” promos, the regulator announced in a press release Wednesday. Because LCF has been in administration since 2019 and its funds are being focused toward restoring bondholder creditors, the FCA opted not to fine the firm.
But the regulator criticized the firm for its “serious failings” that harmed more than 11,000 investors. The FCA said LCF would have owed restitution of about 237 million pounds (U.S. $291 million) had it been ordered to pay.
The details: From June 2016 to December 2018, LCF pushed bondholders to invest in unsuitable, high-risk products through its financial promotions, according to the FCA’s decision notice.
Tactics the firm allegedly utilized included:
- Citing nonindependent comparison websites that misleadingly compared safer third-party investments promising lower interest rates to the minibonds offered by LCF promising higher interest rates;
- Loaning funds not secured against realizable assets held by corporate borrowers, despite assurances otherwise provided;
- Misrepresenting hidden fees passed on directly to borrowers; and
- Misrepresenting its authorization by the FCA.
“We recognize our censure will not provide solace to those investors who lost out,” said Therese Chambers, joint executive director of enforcement and market oversight at the FCA, in the release. “But it is important we set out what went wrong at LCF and how their promotions misled people into parting with their money.”
Compliance considerations: Though LCF is insolvent, the firm is still being investigated by the U.K. Serious Fraud Office regarding potential instances of fraud and money laundering. The Financial Conduct Authority is probing the work of the firm’s auditors.
The FCA said it made improvements to its authorization process and invested nearly £100 million (U.S. $123 million) to strengthen its data analytics capabilities to spot problematic firms in response to a review into its regulation of LCF.