UK watchdog to investigate handling of London Capital & Finance failure

FILE PHOTO: The Canary Wharf financial district is seen at dusk in London
FILE PHOTO: The Canary Wharf financial district is seen at dusk in London, Britain, March 26, 2019. REUTERS/Marika Kochiashvili/File Photo

April 1, 2019

By Huw Jones

LONDON (Reuters) – Britain’s markets watchdog will carry out an independent review of its handling of London Capital & Finance, which went into administration in January with losses of up to 237 million pounds from unregulated “mini bond” investments, it said on Monday.

The Financial Conduct Authority (FCA) said its board decided at a meeting last Thursday that the probe will also look at whether the existing regulatory system adequately protects retail buyers of mini-bonds, which raise funds for small businesses.

The FCA said its board had decided to ask the Treasury for an official direction to commission the review, to ensure it had a “broad and comprehensive” remit.

Britain’s finance ministry said it had agreed to direct the FCA to undertake an investigation into LC&F.

“The recent stories of those affected by the collapse of LC&F are incredibly concerning,” said John Glen, Britain’s financial services minister.

Smith & Williamson, appointed administrators for LC&F in January, said last week in a report that 11,500 bondholders were unlikely to get more than 20 percent of their 237 million pound investment back.

LC&F effectively ceased trading in December after the FCA intervened to direct the firm to withdraw its promotional material for mini bonds.

Staff were made redundant in February, leaving just 3.6 million pounds of cash in the bank.

“There are a number of highly suspicious transactions involving a small group of connected people which have led to large sums of the bondholders’ money ending up in their personal possession or control,” the administrators’ report said.

Nicky Morgan, chair of parliament’s Treasury Select Committee, called last month for the FCA to consider if a statutory investigation was needed into possible regulatory failure.

The FCA said detailed terms of reference of the review and identity of the independent reviewer will be published when it is available.

Last week Britain’s Serious Fraud Office opened its own investigation into LCF, saying it had arrested four people associated with the firm.

(Reporting by Huw Jones; Editing by Carolyn Cohn and Jan Harvey)

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