London Capital and Finance

masonic

Jelli wrote: »

I don't think it's possible for me and a lot of people to understand deeply how a financial company and products work before proceeding with such things, but thought the presence of FCA meant it was running legitimately with no falsehoods on the website. I invested small amounts over a number of years and assumed it would be illegal to missel on a UK website if regulated.

If all information on the website is true then I knew the risks. If not then I didn't know the risks. As far as I know they lend to small to medium companies and is protected by assets.

Even if the loan business and secured assets do exist (and there's no evidence for this), there's good precedent for the lack of protection afforded by such assets from outcomes in the P2P lending sector.

When loans are put into recovery and assets are disposed of via auction, then they tend to sell for a lot less than they are valued. The reason for this is that the valuation makes a number of assumptions, including that the assets are maintained in a certain condition, that there is no time pressure placed on the sale, and that the sale takes place between a willing buyer and seller at fair market value. What gets achieved in practice is fire sales where assets are disposed at a fraction of their fair value, while other assets are found to be in a worse condition than assumed (half-completed building site, business assets not properly maintained or spirited away, trade receivables that do not materialise, infrastructure projects that are mothballed, etc), or even that the assets have been sold or were never actually owned by the borrower. Then it is necessary to deduct the fees of administrators and receivers prior to making a distribution of the proceeds back to lender. There are ample cases where lenders have seen a complete loss of capital, or a recovery of just 20-30% after costs. Of course some loans do repay, and some recoveries have better outcomes, but the risk when you do not know the specific loans into which your money has been flowing is that you end up with a basket of very poor quality loans secured on assets that have little hope of achieving a sale price that would lead to a meaningful recovery.

The lending company may be aware some of their borrowers are unable to meet their obligations, but that formally defaulting and selling the assets is going to give a poor outcome. It is better for them to allow these loans to continually renew or extend, rolling up the cost of interest and fees into the total amount borrowed, in which case none of the loans formally default and all that is needed is a gentle stream of inward investment to cover the money borrowed for interest and fees. It isn't ultimately their money they are risking, but they do get a share of that interest and those fees being added on to the balance of the loans.

The above picture is hypothetical of course, but even if we assume the information about a loan business is true, and the claim that there has been no defaults is also true, there is still a distinct possibility of very significant losses to those who put their money into the scheme now that the regulator has got it's teeth into LCF.

I sympathise with your inability to fully understand the risks. You probably believed you were investing as a normal consumer, protected by consumer rights against being misled or missold, not a sophisticated investor or professional high net worth individual. What we know for sure is that LCF was forbidden from marketing to people like you, but ignored it's legal obligations and went ahead anyway. That's why several of us in this thread are questioning other things LCF may have done simply because they thought they could get away with it.

eskbanker

Jelli wrote: »

I don't think it's possible for me and a lot of people to understand deeply how a financial company and products work before proceeding with such things, but thought the presence of FCA meant it was running legitimately with no falsehoods on the website. I invested small amounts over a number of years and assumed it would be illegal to missel on a UK website if regulated.

If all information on the website is true then I knew the risks. If not then I didn't know the risks. As far as I know they lend to small to medium companies and is protected by assets.

On your point about whether or not there was actually misselling on their website, the current version is somewhat more curtailed than what was there before, but still includes the caveat that:

Our products are aimed at retail clients who are UK taxpayers and who fall in the category of either High Net Worth Individual, Sophisticated, Self Certified Sophisticated or Restricted Investor.

i.e. despite their marketing implying a mainstream retail product, it's always been spelt out in the small print that it isn't.

This thread conveniently includes a range of quotes from the LCAF site from 2015 onwards, including the likes of [post #5, 22-10-15]:

Am I covered under the financial service compensation scheme?
No, this product is an unregulated investment and is not covered under the FSCS, we suggest you always seek independent advice from a regulated adviser before investing.

and [post #16, 08-03-16]:

- In the event that these borrowers default on the loans, investors are likely to lose some or all of their investment. Investment in the bonds of London Capital & Finance is therefore speculative and involves a degree of risk

It's obviously too late now for you, Jelli, but for the benefit of any readers who are considering putting their money somewhere in the belief that they're protected by references to FCA regulation, it's always more relevant to check FSCS coverage, although there's at least one scheme that claims such coverage but this is questioned by knowledgeable posters....

jimjames

masonic wrote: »

The above picture is hypothetical of course, but even if we assume the information about a loan business is true, and the claim that there has been no defaults is also true, there is still a distinct possibility of very significant losses to those who put their money into the scheme now that the regulator has got it's teeth into LCF..

As I posted in #359 https://forums.moneysavingexpert.com/showpost.php?p=75245345&postcount=359

it appears that LCF have also been spending a lot of money sponsoring events and running corporate hospitality. So not only do they need to have loans that are made at above average interest rates they also need to recoup sufficient money to cover their running costs and promotional/sponsorship budgets.

It is entirely feasible that a large portion of investors money has been used for these purposes - in their view it might just be "unfortunate that none of the money spent on promotion generated sufficient business returns" rather than thinking it was a misuse of investors money to spend it on horse racing and schmoozing possible clients. A photo of the LCF hospitality area at one such event.


https://damn-lies-and-statistics.blogspot.com/2018/12/london-capital-finance-get-money-back.html

Jelli

Thanks for your replies.

If I do lose my 61k which I got from not having a full life (I lived minimally for 10 years, eating lettuce leaves etc), I might try starting a small business and hopefully make the loss back. But I do suffer from fatigue so not sure if that's possible.

masonic

Jelli wrote: »

If I do lose my 61k which I got from not having a full life (I lived minimally for 10 years, eating lettuce leaves etc), I might try starting a small business and hopefully make the loss back. But I do suffer from fatigue so not sure if that's possible.

It's early days yet, but if you do suffer a substantial loss, then it would be worth considering whether there is a case for redress from the FCA, as it was through their inaction that LCF was able to freely market its products to consumers for a number of years leading up to this action... and I know they received reports of LCF's wrongdoing which they apparently failed to act on, because some of them came from me.

Malthusian

Jelli wrote: »

Thanks for your replies.

If I do lose my 61k which I got from not having a full life (I lived minimally for 10 years, eating lettuce leaves etc), I might try starting a small business and hopefully make the loss back. But I do suffer from fatigue so not sure if that's possible.

This is not going to help, but you are exactly the kind of investor that tends to find themself in the situation, and this throws LCF's (regulation-driven) claim that "Our products are aimed at retail clients who are UK taxpayers and who fall in the category of either High Net Worth Individual, Sophisticated, Self Certified Sophisticated or Restricted Investor" into sharp relief.

The reality is that almost no high net worth / sophisticated investor would invest their money into these things.

I would start planning on how to live without the £61k. If you start a small business and make another £61k and it turns out that LCF is fine and dandy, then terrific - you'd have £122k.

Malthusian

masonic wrote: »

It's early days yet, but if you do suffer a substantial loss, then it would be worth considering whether there is a case for redress from the FCA, as it was through their inaction that LCF was able to freely market its products to consumers for a number of years leading up to this action.

The FCA has statutory immunity and investors have no recourse against the FCA. That is a total non-starter.

The FCA has never in its history compensated anyone over its failure to act on anything.

The FSCS sometimes pays out redress to investors in limited circumstances (such as where investors were advised to invest via FCA-regulated advisers or FCA-regulated SIPPs). However this is nothing to do with regulatory failure; this is compensation for failings by FCA-regulated companies (who then went bust), not the FCA itself. Those who receive FSCS compensation are compensated by the general public, via levies.

London Capital & Finance does not appear to have been sold via FCA-regulated advisers or SIPPs. At least, I haven't seen anyone say they were.

masonic

Malthusian wrote: »

The FCA has statutory immunity and investors have no recourse against the FCA. That is a total non-starter.

The FCA has never in its history compensated anyone over its failure to act on anything.

Although slightly different to this situation: https://www.ftadviser.com/regulation/2018/07/04/fca-told-to-pay-22k-over-woefully-inaccurate-register/

Malthusian

That'll teach me to not include caveats like "over something like this". I stand corrected, especially as I do now remember reading of that case.

Nonetheless, there's a big difference between £22k over an inaccurate FCA register - which the FCA is clearly responsible for - and £215m of investors' money in this (according to LCF's marketing claims, which should be taken with a pinch of salt).

I disagree that the £22k situation was only slightly different. They are significantly different, and the difference is that in that case, the FCA's register was objectively inaccurate, so the FCA had made a clear error.

In this case, what the FCA is being accused of is intervening too late. I think we'd all agree they acted too late, but how late, and does it make them liable?

What I should have said originally was; the FCA has never in its history compensated investors over situations like Secured Energy Bonds, Providence Bonds, Capital Alternatives, Store First, Arch Cru, Catalyst, EEA Life Settlements, etc etc etc, which this one falls into (if it turns out that LCF investors have lost their money). Because the accusation against the FCA is one of intervening too late rather than providing inaccurate information as with the investor who got £22k.

masonic

As I mentioned previously, it's early days yet to judge whether or not there is a case for redress. We do not yet know all of the facts. But if LCF turns out to be an outright scam perpetrated by an Authorised firm (even if this part of their business was unregulated), and the FCA was tipped off to that effect and didn't investigate, then it bears a striking similarity. Whereas if LCF had a legitimate lending business and merely marketed to the wrong type of people, then that would be completely different.