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Another Mini-Bond Firm Goes Under

The Financial Conduct Authority warned investors in May to stay away from the unauthorised firm Asset Life, which held £8 million in mini-bond savings

James Gard 14 August, 2019 | 12:11PM

FCA building

Asset Life is the latest mini-bond firm to fall into administration, following the high-profiole collapse of London Capital & Finance’s earlier this year.

Asset Life is believed to have had 500 investors with £8 million in savings, whereas LFC went under owing 14,000 investors up to £240 million.

Asset Life offered debenture investments paying interest rates of 8.75%. It was reported in July that the firm had written to its investors informing them it was undertaking a restructuring plan and that the repayment of their investments would be delayed. 

Companies House information shows that a director of Asset Life, Martin Binks, was also a director at LCF between October 2015 and August 2016.

The Financial Conduct Authority warned investors about Asset Life in May this year, saying that the company was not authorised to provide financial services or products in the UK – it said people should be “especially wary” of dealing with Asset Life and laid out some guidelines for how to protect yourself from scammers.

The regulator is under review from the Government about its handling of LCF and its collapse. The regulator has attracted criticism for not acting quickly enough to investigate concerns over LCF. Chair of the Treasury Select Committee, Nicky Morgan, said questions over the collapse of the firm need to be answered urgently, rather than within the expected 12-month timeframe of the review. Unlike Asset Life, LCF was regulated by the FCA.

Quizzed by the committee in June, the FCA’s chief executive Andrew Bailey said that the LCF collapse should never have happened and called for more regulatory powers to police the “hinterlands” of financial products.

Can LCF Investors Get Compensation?

LCF’s collapse is also being investigated by the Serious Fraud Office, which has made a number of arrests this year. 

The marketing of mini-bonds has been controversial: they were meant to be promoted only to sophisticated investors who understood that the products were not covered by the Financial Services Compensation Scheme, which refunds investors up to £85,000 if the firm that holds their savings goes under.

The FSCS is now looking at ways that LCF investors can receive compensation. It said: “When an investment firm fails, we know that this can have dire, even tragic, consequences for the firm’s customers. In every case we work as quickly as possible to try to establish whether there are ‘protected claims’ that would allow us to put the firm into default and start accepting claims for compensation.”

But LCF bondholders tended to be older, less sophisticated investors who in some cases tied up a sizeable amount of their savings. Advertised interest rates of 8% or 9% drew in investors who wanted an alternative to low interest rates on high street savings. These investors in many cases failed to appreciate that their capital was at risk, even though LCF adverts did feature the words “capital at risk” in the small print. Campaigners are advocating that in future this wording is made more prominent on adverts for financial products.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

James Gard  is content editor for Morningstar.co.uk

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