London Capital & Finance collapse and the compensation scheme

London Capital & Finance was a mini-bond issuer that failed and went into insolvency. The collapse saw nearly 12,000 people collectively lose £236m¹. Because the mini-bonds were unregulated investments, the Financial Services Compensation Scheme (FSCS) did not cover them, and the government instead set up a separate compensation scheme for bondholders².

The FSCS is the UK's statutory compensation scheme. It protects customers of authorised financial services firms if they fail or have stopped trading³. For investments, it protects up to £85,000 per person per authorised firm⁴. That protection applies to claims against a firm that has failed, not to the investment itself performing badly.

This page explains what happened to LCF bondholders, what the FSCS does and does not cover, what to do if an adviser recommended the bonds, why claiming is free, and how long a claim can take.

What the London Capital & Finance collapse means for bondholders

London Capital & Finance plc was a failed mini-bond issuer, now in insolvency². The mini-bonds it sold were unregulated investments, which is why the FSCS did not cover them in the usual way. Instead, the government established a compensation scheme specifically for LCF investors².

The FSCS has been involved in paying compensation connected to the failure. Its own accounts show that recoveries activity allowed it to return approximately £2m to customers who had previously had their compensation capped⁸. The FSCS also reported that expected compensation costs for the relevant funding class decreased from £224m to £156m for 2024/25, and that compensation for that class in 2023/24 was £130m, £51m lower than forecast in November 2023³.

For bondholders, the practical position is that the money was lost through the failure of an unregulated investment, and recovery has come through a mix of the government scheme and FSCS activity rather than through ordinary FSCS investment protection. If you held LCF bonds, the scheme set up by the government is the route to check, and the FSCS can confirm whether any claim falls within its remit².

FSCS investment cover: up to £85,000 per person per firm

The FSCS protects up to £85,000 per person per authorised firm for investments⁴. The same £85,000 limit applies to investment provision and to debt management claims⁹. For deposits held with banks, building societies and credit unions, the limit is higher: up to £120,000 per person or company, per authorised firm⁵.

The limit is per person, per firm, not per account. If you hold several investments with the same authorised firm, they count together towards the £85,000 limit. If a firm has failed and you have a valid claim, the FSCS may be able to compensate you up to that limit¹¹.

The FSCS is funded by a levy on the authorised firms whose customers it protects. All the authorised firms whose customers are protected by the FSCS pay a fee, or levy, to fund the cost of claims¹². The compensation limits and rules themselves are set by the Financial Conduct Authority and the Prudential Regulation Authority¹¹.

Unregulated investments are not usually covered

The FSCS does not cover poor investment performance. Losses resulting from poor investment performance are not covered by the compensation scheme¹³. The scheme protects against the failure of an authorised firm, not against an investment falling in value¹⁴.

Unregulated investments generally fall outside FSCS protection. Peer-to-peer investments are one example of an unregulated investment that is not usually covered¹⁵. Cryptoassets are another: the FSCS does not protect qualifying cryptoassets because they are not a "specified investment" under the UK regulatory regime¹⁶. Cryptocurrency fraud is mostly not covered by the FSCS either¹⁷.

This is the core reason LCF bondholders could not simply claim through the FSCS in the ordinary way. The mini-bonds were unregulated, so the usual investment protection did not apply, and a separate government scheme was needed².

Where an adviser recommended the investment

You may still be able to claim if a financial adviser recommended the unregulated investment¹⁵. The claim in that case is about the advice, not the product. If you feel you were given the wrong advice by an adviser or firm regulated by the Financial Conduct Authority, you can bring your complaint to the Financial Ombudsman Service¹⁸.

If the adviser is still trading, you can complain to the Financial Ombudsman Service¹⁰. The ombudsman looks at whether the firm led you into buying the investment in any way, and if it did advise, whether the advice was suitable. That includes whether the literature clearly explained how the return was calculated, the maximum potential return, features such as averaging and management strategies, the risks of the underlying indices, the end of term, and charges or surrender penalties¹⁹.

The ombudsman has awarded compensation in comparable cases. In one case involving advice on an investment bond, it instructed the business to pay £500 in compensation for distress and disruption²⁰. In another, it recommended that the firm pay the full balance owed if the compensation amount exceeded £160,000²¹.

If the adviser has failed, the FSCS may be able to help instead. The FSCS can consider claims against a firm that has failed, up to £85,000 per eligible person, per firm¹¹.

Claiming is free: you do not need a claims management company

You do not need to use a claims management company to make a complaint, and it is free to do it yourself⁷. You do not need to use a claims management company at all²². Claims management companies often charge fees for their services, which can mean you receive less compensation than you are owed²³.

The Financial Ombudsman Service is free to use, and the FSCS does not charge you to claim. Paying a third party to handle a complaint that you can make yourself reduces what you keep.

How claims are handled and how long they take

For deposits, the FSCS aims to pay compensation within seven working days of a bank, building society or credit union failing, though more complex cases take longer²⁵. For investments, the FSCS says it aims to pay claims as soon as possible, but the time it takes varies depending on how quickly the insolvency practitioner can reconcile the data from the failed firm¹⁰.

The FSCS is not the only body involved. The claims process involves the FSCS and, where a firm has failed, an insolvency practitioner who reconciles the firm's data²⁶. That reconciliation step is often what determines how quickly a claim can be assessed and paid.

For deposits, you do not need to do anything: the FSCS compensates you automatically¹⁰. For investments and other claims, you usually need to make a claim yourself. The FSCS can be contacted by phone, email, post or live chat²⁴.

Who provides FSCS protection and where it stops

The FSCS is the UK's statutory compensation scheme²⁶. It covers banks, building societies, credit unions, investments, debt management and pensions, among other areas¹¹. The limits and rules are set by the Financial Conduct Authority and the Prudential Regulation Authority¹¹.

Protection stops at the limits and at the edges of what is regulated. The £85,000 investment limit is per person, per authorised firm⁴. The £120,000 deposit limit is per person or company, per authorised firm⁵. Unregulated investments, poor investment performance and cryptoassets generally fall outside the scheme¹⁵.

If you are unsure whether a firm or product is covered, the FSCS publishes guidance on what it covers, and you can check before you invest¹¹. For free, impartial help with a complaint or a claim, the Financial Ombudsman Service handles complaints about regulated firms, and the FSCS handles claims against failed firms¹⁸.