After London Capital & Finance recently admitted that it was insolvent and put itself into administration, bringing a three-year career of persistent misselling to an end, now seems a good time to look back upon its short life – and what the FCA did about it during that time.
July 2015: An obscure company called Sales Aid Finance (England) Limited renames itself London Capital & Finance, despite being based in Tunbridge Wells, about 20 miles away from Greater London’s outskirts. This appears to have signalled the launch of its new business model.
October 2015: A member of the public asks the Moneysavingexpert forum about LCF after coming across them while Googling for “investment ideas”. The forum is unanimous in advising them not to invest.
November 2015: A prominent financial adviser, after being asked about LCF by one of his clients, writes to the FCA to warn about their activities.
2016-19 (and ongoing): The FCA continues to expend hundreds of man hours a week on implementing the Mifid II directive, dubbed by one compliance expert “by far the worst piece of financial regulation ever in Europe”. Mifid disclosure requirements are so bad that the FCA itself advises firms that they should issue “additional explanation” when the documents that Mifid forces them to issue are misleading. All of this is for a directive that the UK no longer has any good reason to follow once it leaves the EU.
June 2016: After an application process which is likely to have taken at least six months, the Financial Conduct Authority approves London Capital & Finance (for corporate finance business only; its loan notes remain unregulated).
By authorising its business, the FCA allows LCF to target the ISA transfer market, using the new Innovative Finance ISA wrapper – notwithstanding that LCF’s bonds are not eligible for ISA status – as well as giving it the added cachet that comes from being able to display “Authorised and regulated by the Financial Conduct Authority” on your website.
Early 2017: The FCA spends £60,000 on a new logo (plus an unknown number of worker hours changing all its stationery). The new logo is identical to the old one, but swaps around the maroon/white colour scheme, ruining the genuinely clever spotlight effect in the old logo.
March 2017: Drew J of the Damn Lies & Statistics blog adds another complaint to the FCA’s pile of warnings against London Capital & Finance.
August 2017: The FCA pays an undisclosed amount to hang out with Arnold Schwarzenegger and get him to front a series of ads telling the two people who had PPI and haven’t yet made a claim to make one.
December 2017: Bond Review is founded and, in our first ever post, issues a warning about the high risk nature of London Capital & Finance bonds.
February 2018: London Capital & Finance finally files its annual accounts for 2017 four months late, having used the accounting-period-shortening loophole twice in a row.
Its auditors, Ernst & Young, do not identify any concerns or issues with the accounts, and state that they have not identified any misstatements in the Strategic Report or the Directors’ Report. The directors’ report states that LCF is a going concern, and makes no suggestion that this is dependent on continuing future investment.
March 2018: The FCA publishes a collection of 28 essays on “Transforming Culture in Financial Services” from “thought leading academics, industry leaders, international regulators and change practitioners”. Leading figures from centres of excellence such as the University of Greenwich pontificate on subjects such as “Creating a culture of learning through speak-up arrangements”, “The permafrost problem: from bad apples to excellent sheep” and “A New Dawn for Cultural Transformation as Organisations Make Stakeholder Interests a Reality”.
July 2018: The FCA launches a consultation into why most people still don’t switch their cash accounts for an extra 0.5% a year.
October 2018: The standard six-month deadline for London Capital & Finance to file its April 2018 accounts expires. London Capital & Finance again deploys the accounting-period-shortening trick to avoid being officially overdue.
December 2018: The FCA finally wakes up, orders LCF to remove all its marketing materials, followed swiftly by a second order to freeze all its assets including its bank accounts.
January 2019: LCF places itself into administration, stating that it is unable to raise money from new investors, and is insolvent.
The only thing worse than realising that your spouse has been cheating on you for years is realising that you were literally the only person who didn’t know about it, and that you’re the laughing stock of the whole town. Unfortunately this is the reality that LCF investors are waking up to.
Some of the facts about London Capital & Finance, such as the lending to companies closely linked to LCF directors, have only come to light since the administration. However, it was always clear right from day one (i.e. late 2015) that LCF bonds were extremely high risk products that, like any unregulated loan to a small startup, carried a high risk of loss by their very nature. That risk has come to pass.
As for those facts that have only come to light in the last few weeks, they were never hidden; they have been public knowledge for months available via Companies House, but it took the FCA orders to spark enough interest in people with enough expertise to uncover them.
As always the investors are last to find out. And the cost of the FCA’s failure to act on LCF’s misselling before stands at anything up to £225 million of life savings, depending on what is eventually recovered in the administration.