LC&F Government funded compensation scheme set up

dunstonh

https://www.ftadviser.com/regulation/2021/04/19/govt-launches-120m-lcf-compensation-scheme/

I know LC&F bond holders will be happy with this but I personally feel it is wrong.   The taxpayer is effectively picking up the tab for bad investment decisions made by people that focused on greed before common sense.   Ok, that is a cold way to describe it but you could see LC&F warnings all over the internet and the interest rate was too high to be close to reality for a savings account.   Even the ones on this site, when the board wasnt too busy deleting them and banning people, were right at the top on a google search.

And we know from countless threads that people were willing to ignore the warnings and still go with it anyway.   So, instead of helping the homeless or children going without meals or the many other deserving causes that need support, the Government has decided to pay £120 million in compensation to greedy investors making poor investment decisions.     

.... and just in case.   Cheerio all.

Eyeful

And just in case, I will be counting the days till you return again.

underground99

dunstonh said:

https://www.ftadviser.com/regulation/2021/04/19/govt-launches-120m-lcf-compensation-scheme/

I know LC&F bond holders will be happy with this but I personally feel it is wrong.   The taxpayer is effectively picking up the tab for bad investment decisions made by people that focused on greed before common sense.  

Can't disagree with that. The subheadline is that the compo , "will be available to all LCF bondholders who have not already received compensation from the Financial Services Compensation Scheme (FSCS) and represents 80 per cent of the compensation they would have received had they been eligible for FSCS protection". So the people who were not covered by compensation because they were not buying a regulated investment product that was eligible for any protection, will get paid out the vast majority of the amount that the industry-funded scheme would have covered if they had bought something eligible, but now the taxpayers are going to pay for it, like a welfare benefit.

I remember in the global financial crisis when the Icelandic banks were going under, the government stepped in to protect all the IceSave retail depositors, not just to the amount of the compensation scheme limits but even to higher amounts that the greedier customers had put into the high-paying bank accounts in excess of the protection limits. Making sure everyone got paid out in full was 'above and beyond' what was officially necessary, but it helped to maintain confidence in the banking system generally and may have helped prevent a 'run' on other vulnerable banks in the scenario where people may have lost confidence and pulled large deposits. 

Though it created some costs for the industry, in the banking crisis example I can see why government intervention was useful - to provide that extra protection so that millions of citizens didn't read the headlines of people losing their life savings, which might cause them to lose faith in retail banking at the time the 'credit crunch' was going on.

But in this case, what is the message being sent?  We want to provide extra protection above and beyond what people had legitimately qualified for... so that millions of people don't read the headlines of people losing their investments in unregulated mini-bonds... because it might cause them to lose faith in making investments in unregulated mini-bonds without independent advice? 

While we can sympathise with those people who lost money through being hoodwinked or doing inadequate research, it seems a bit extreme and not much of a 'lesson' to give them more than half the compensation they could have got if they'd bought a product that qualified for it, when they didn't. 

From the article:

John Glen, economic secretary to the Treasury, said:
"It is imperative to avoid creating the misconception that government will stand behind bad investments in future, even where FSCS protection does not apply. 
"That would create a moral hazard for investors and potentially lead individuals to choose unsuitable investments, thinking the government will provide compensation if things go wrong. 
"The ultimate responsibility for choosing suitable investments must remain with individuals."

Yes, I agree we should avoid giving people a misconception that the government will stand behind bad investments in future. That objective is not helped by having the government stand behind bad investments now and caveating it with, 'but don't go thinking we'll do it again next time".  People will still ignore that small print and will take away the message that if you lose money through bad judgement the government will feel sorry for you and let you get it back, just like if you unwisely bought expensive PPI you didn't need, or chose to bank-transfer some money to a conman who ran off with it never to be found.

TheAble

It does seem the way of the world these days. And prudent types who take care of themselves get no help at all.

kuratowski

An awful precedent.

maxsteam

dunstonh said:

 the Government has decided to pay £120 million in compensation to greedy investors making poor investment decisions.     

Yes, I agree that investors were at fault. The regulatory authorities were also at fault.

Investors will not get all of their deposits back though.

jimjames

Bondholders hit by Basset & Gold failure have been picked up by the FSCS plus this. Next one that will be expecting compensation is Blackmore.

It does make me wonder when people claim they did due diligence before investing in these sort of schemes. Even the most cursory of searches would have found the pages of info on here telling people what the risks were. As mentioned above some read that info and still went ahead. Some  will lose out because they invested well above the compensation limit but if you put £900k in an unregulated investment then you're clearly taking a lot of risk.

IvanOpinion

I would love to know how someone decides who gets help.  Back in 2007 during the financial crash when several banks collapsed some got help others didn't (an element of nepotism?).  I agree with DunstonH this is a bad decision, sets a dangerous precedent and a mockery of FSCS.

soulsaver

IvanOpinion said:

I would love to know how someone decides who gets help.  Back in 2007 during the financial crash when several banks collapsed some got help others didn't (an element of nepotism?).  I agree with DunstonH this is a bad decision, sets a dangerous precedent and a mockery of FSCS.

I suspect it depends on how many MPs have invested...? Or councils? The councils were well deposited in Icelandic banks, for sure.

jimjames

soulsaver said:

IvanOpinion said:

I would love to know how someone decides who gets help.  Back in 2007 during the financial crash when several banks collapsed some got help others didn't (an element of nepotism?).  I agree with DunstonH this is a bad decision, sets a dangerous precedent and a mockery of FSCS.

I suspect it depends on how many MPs have invested...? Or councils? The councils were well deposited in Icelandic banks, for sure.

Or it's to protect the new governor of the Bank of England. LCF happened on his watch at FCA so all the time it's rumbling on in the background it's reminding people he had responsibility. Either way it's a political decision to use our taxes to bail out.

Malthusian

IvanOpinion said:

I would love to know how someone decides who gets help.  Back in 2007 during the financial crash when several banks collapsed some got help others didn't (an element of nepotism?). 

Assuming we're staying in a UK context, all UK depositors got bailed out in full, even those who should in theory have been left to queue up outside the Icelandic compensation scheme.

No doubt some banks got more help than others but that wasn't something a retail UK investor needed to care about, as their money was safe regardless of how much help their bank got - unless they'd piled in to Halifax shares.

Barclays tried to decline being bailed out because they'd been more prudent and didn't need it; they were pressured into accepting Government funds anyway to ensure they didn't make the other banks look bad (tall poppy syndrome). So my recollection is the opposite of yours: rather than some banks not getting help when they needed it because of favouritism, some banks were forced to accept help when they didn't need it so the others didn't get punished for their incompetence.