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Minister apologises for LCF minibond scandal

Simon Neville, PA City Editor
·3-min read

A Government minister has said sorry to the thousands of savers caught up in a minibond scandal that is now the subject of a taxpayer bailout.

John Glen, Economic Secretary to the Treasury, told MPs on the Treasury Select Committee: “I want to apologise to the 11,625 LCF bondholders who have endured significant uncertainty.”

London Capital and Finance (LCF) went bust in 2019, with bondholders facing losses of up to £267 million.

A damning report by Dame Elizabeth Gloster said regulators failed to act to protect them and ignored whistleblowers who highlighted potential fraud.

Mr Glen said the Government has launched a consultation to strengthen the minibond market from abuses and wanted to work on ways to improve explaining the schemes to investors.

But he declined to give his full backing to one of the regulators named in the report, or defend the Financial Conduct Authority’s (FCA) decision to promote her.

John Glen
John Glen apologised (ParliamentTV/PA)

Megan Butler faced touch questions from the committee last month over whether she was suitable to be in her new position as executive director for transformation, considering she had been criticised in the report.

Committee chairman Mel Stride MP asked the minister: “There will be a lot of people out there who have lost a lot of money… who will be feeling very sore about the situation and many of them will say whenever there’s a crisis in one of these kinds of organisations there’s an inquiry, but in the end nothing really happens to those in a position of responsibility in those organisations.

“They will say ultimately the buck doesn’t stop anywhere. What do you say to that?”

Mr Glen responded: “They (the FCA) are an independent regulator… and I think it would be inappropriate for me to make a running commentary on appointments of individuals to different roles in the context of significant organisational changes by a new chief executive.”

Andrew Bailey, the former chief executive of the FCA and current governor of the Bank of England, was also named in the report over failures of oversight.

The minister added that future savers who lose out on investments that turn bad cannot always expect bailouts from the Government, highlighting that LCF was a unique case where the structure of using savers’ cash to invest in unregulated activity needed tightening up.

He also said education will be key, and explained: “I think there is a distinction in the types of minibonds.

“You have minibonds that, say, Hotel Chocolat and Brewdog would issue as everyday financing.

“They would be appropriate for everyday financing. But the distinction is between that kind of minibond and those with on-lending.

“What you saw with LCF was people putting money into a bond where that money was lent to a third party with no oversight going on there.”

On Monday it was announced that about 8,800 pension savers and others with millions of pounds trapped in a failed investment scheme will be paid approximately £120 million from the Government.

The Treasury said that investors in LCF would be able to claim back up to 80% of the money they had invested in the collapsed scheme, after a review found that authorities had failed to properly protect consumers.

Payments will be capped at £68,000 – or 80% of the Financial Services Compensation Scheme (FSCS) which protects some retail investments.