UK financial watchdog censures insolvent London Capital & Finance

By Huw Jones

LONDON (Reuters) - Britain's Financial Conduct Authority (FCA) said on Wednesday it had censured London Capital & Finance (LCF) for "unfair and misleading" promotions of minibonds, but there is no financial penalty as the firm is insolvent.

LCF's collapse in early 2019 left investors facing losses on the unregulated minibonds they had bought, leaving Britain's taxpayers to pay about 120 million pounds ($147 million) to compensate them.

"These promotions presented a misleading picture of the minibonds and made them appear a far more attractive investment than they were," the FCA said in a statement.

The FCA published its findings on LCF, helping to draw a line under a bruising scandal for the watchdog that triggered internal changes.

LCF, which was licensed by the FCA, "may have knowingly participated in the defrauding" of bondholders, the watchdog said.

The Serious Fraud Office is investigating suspected fraud and money laundering at LCF, where 11,000 investors lost more than 237 million pounds between 2014 and 2019 in a minibond scheme.

Reuters could not immediately reach representatives of LCF for comment.

"The FCA does not consider it appropriate to impose a financial penalty on the firm as it is insolvent and in administration. To do so would only divert funds that the administrators may use for the benefit of bondholder creditors."

"We recognise our censure will not provide solace to those investors who lost out. But it is important we set out what went wrong at LCF and how their promotions misled people into parting with their money," said Therese Chambers, FCA joint executive director of enforcement and market oversight.

A report into the FCA's handling of LCF by former high court judge Elizabeth Gloster said the watchdog had failed to properly supervise the investment firm.

The FCA said on Wednesday it had undertaken a significant transformation plan to implement Gloster's recommendations, and had tightened up its authorisations process, resulting in one in four applications now being rejected.

In 2020, the watchdog banned the mass-marketing of speculative illiquid securities, including speculative minibonds, to retail investors.

($1 = 0.8141 pounds)

(Reporting by Huw Jones; Editing by Alison Williams and Mark Potter)