Making sense of London Capital & Finance

  • Describe what the problems were with London Capital & Finance
  • Identify some of the regulatory consequences of the collapse of LCF
  • Describe how the authorities have responded
Making sense of London Capital & Finance

Complex regulatory, statutory and criminal investigations are underway after some 11,600 members of the public suffered major losses following the collapse of mini-bond issuer London Capital & Finance (LCF) earlier this year.

It is widely hoped that these investigations will ultimately lead to the establishment of an effective regulatory regime for mini-bond issuers.

On 18 March 2019, the Serious Fraud Office (SFO) made four arrests in connection with the collapse of the high-risk lender.

At that stage, it was known that LCF’s sales agent Surge Financial was being paid 25 per cent commission on the funds it raised for LCF.

Administrators Smith and Williamson put the total commission paid at some £60m. Last June, the chief executive of Surge Financial, Paul Careless, was also arrested and questioned by SFO officers.

Investors in LCF mini-bonds were led to believe that their money was being invested in a large number of companies, which transpired not to be the case.

In fact, the four arrests made last March were of individuals connected to the small number of businesses into which investor’s money was being suspiciously pumped.

Investors were also told that the mini-bonds qualified to go into an Isa.

Again, this proved not to be the case.


Mini-bonds can be risky.

They allow companies to raise capital by borrowing directly from the public.

In LCF’s case, customers were promised returns of 6.5 per cent to 8 per cent on their investment. Such high yields come at an inevitable cost, with investors typically exposing themselves to much higher risk.

The return on any investment depends upon the success of the company invested in.

If that company fails, the investor may see no return at all.

Furthermore, mini-bonds are not normally protected by the Financial Services Compensation Scheme (FSCS) and so if the issuer is unable to repay the capital, there is no guarantee that investors will get their money back.

Financial Conduct Authority


Authorised firms have to comply with overarching principles and rules issued by the FCA when carrying on regulated activities in the UK.

However, the Order excludes certain activities from its scope.

Issuing mini-bonds is not a regulated activity and so firms issuing them do not need to be authorised by the FCA.

LCF did not therefore need to be regulated to issue the mini-bonds. However, it did need to be regulated in order to promote them.

Shortly before LCF’s collapse, on 10 December 2018, the FCA ordered LCF to stop marketing its fixed-rate investment bonds and Isa products.

Three days later it froze LCF’s assets. The concerns cited by FCA included LCF’s mini-bonds being marketed as Isa eligible, when they were not.  

The regulator has the power to bring criminal charges when an investigation uncovers evidence suggesting a crime has been committed.



  1. The London Capital & Finance mini-bonds were protected by the FSCS, true or false?

  2. What was especially dubious about the LCF mini-bonds?

  3. At what point did the regulator step in?

  4. How is the FSCS arguing that investors could get compensation?

  5. The Serious fraud Office has made arrests in connection with the collapse, true or false?

  6. What is the connection to Surge Financial?

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  • Describe what the problems were with London Capital & Finance
  • Identify some of the regulatory consequences of the collapse of LCF
  • Describe how the authorities have responded

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