Following the release of the FSCS annual report on the 8th July for 2019/20 period, the FSCS announced they had helped 258,119 customers, dealt with 137 failures of financial services firms and were able to recover approximately £50m from the estates of failed financial services firms.
Our particular interest in this report pertained to the London Capital & Finance (LCF) mini bonds and multiple SIPP providers which have been frontline news over the past year.
Minibonds are typically high risk, unregulated and not included as an FSCS-protected investment, however it is good to see that the FSCS have recognised the misleading advice to some 11,600 customers who will have a valid claim. In December 2018 the FCA ordered LCF to stop promoting the mini-bonds and deemed the investments ineligible for Isa’s. In January 2019, LCF entered administration. All Isa investors in LCF mini-bonds who have not received a letter from FSCS by 24 February 2020, have been invited to provide evidence to the FSCS about their claim.
The Chief Executive, Caroline Rainbird, commented:
“London Capital & Finance (LCF) has been one of the most significant cases for FSCS in the months before and since my appointment as Chief Executive, not only in terms of the number of those affected but also in its complexity. After LCF entered administration in January 2019, we carried out a thorough factual and legal analysis. To help our ongoing investigation, we developed an online questionnaire for LCF’s customers to capture further details of the services LCF provided to them. At the point of writing, we have received more than 7,000 responses. We also obtained thousands of telephone recordings and a vast number of emails. In all, we collected over one million pieces of evidence. We have reached four conclusions so far in the review process.
First, we determined that LCF has carried out some regulated arranging and that FSCS could therefore protect bondholders who switched from existing stocks and shares Individual Savings Accounts (ISAs) to LCF minibonds. We paid 162 bondholders compensation in 2019/20.
The second was that, unfortunately, we were unable to protect the bondholders who dealt with LCF before 7 June 2016, because LCF was not fully authorised to carry out financial services business before that date.
Third, we consider that LCF did not carry out a regulated activity in issuing its own mini-bonds and, therefore, that this was not something that FSCS can protect.
Finally, our wider investigation concluded that LCF gave misleading advice to some of its 11,600 customers, so they will have valid claims for compensation on this basis. We have begun assessing these case-by-case, although it will take some time to process them all. We are continuing to keep both industry and LCF customers updated on our progress. Some bondholders disagree with FSCS’s analysis on whether LCF carried out a regulated activity in issuing its own mini-bonds and have commenced a judicial review of our decision, which is ongoing. This is a complex legal issue where clarity from the courts will be helpful.”
Self-Invested Personal Pensions (SIPPs)
The Chief Executive, Caroline Rainbird, commented:
“Another important case for us over this period has been that of the British Steel Pension Scheme (BSPS). Earlier this year I attended a BSPS roundtable at Westminster, along with representatives of the Financial Conduct Authority, Financial Ombudsman Service, Money and Pensions Service, The Pensions Ombudsman and The Pensions Regulator. We were all moved by the stories from steelworkers who had lost pension money they had worked so hard for. We understand their frustration and empathise with their suffering. Before this, we visited Port Talbot and Scunthorpe to meet with scores of steelworkers, to speak to them about their concerns, listen to their stories and talk through their rights to compensation. This case has reinforced and emphasised the value of being directly involved with customers. We are continuing to do all we can to make sure we put back on track those BSPS customers who are eligible for compensation.”
We already saw in the 2020-21 budget, published in January, the levy was increased to £213m. This is £87m more than the total for 2019-20 and the FSCS puts the increase down primarily to a rise in the number of self-invested personal pension claims.
The FSCS also published a case study from a client who managed to recover his pension that was lost after being mis-invested:
SIPP Case Study:
When Brian Cox learnt his Self-Invested Personal Pension (SIPP) was worthless after the company he had trusted his personal pension to, mis-invested it, he went through months of anguish, believing all hope of retirement had gone.
Brian, a 62-year-old factory worker from Hull, said, “When I found out that my pension had gone I was in total shock. I thought it had been transferred into a low-risk SIPP, but the company I used had then moved it into high risk products and gambled my money away.”
“I’d never have agreed to that as I just wanted something that paid out a little bit above the rate of inflation. Within 10 months of transferring my personal pension into a SIPP, the company had gone bust and the shares were worthless.”
“It was hard to deal with as £27,500 is a lot of money to me. I knew of FSCS as their logo is in my local bank, so I immediately got in contact with them but didn’t hold out much hope of getting any money back.”
“I can’t thank FSCS enough as they compensated me for the full amount. If FSCS can’t help you, then I don’t know who can. Making the claim through FSCS was straightforward as you fill in your details on FSCS’s website and include the financial documents they need.”
“The claim took a while as they had to do some investigations, but when I got the letter from FSCS in September 2019 to say they would repay the full amount I’d lost it was worth the wait. They were able to reimburse me as I was given unsuitable advice to transfer my pension, and the firm that did the transfer had put my money at risk through their actions.”
“The process couldn’t have been easier. If FSCS hadn’t been able to pay me compensation, and thankfully they gave back the full amount, I would have taken this worry to my grave.”
Read the full report on the FSCS website: https://www.fscs.org.uk/news/fscs-news/annual-report/
Director of Strategy & Operations