Calls for investigation into financial watchdog after London Capital & Finance collapses with £236m of investors’ money

The bonds on offer from London Capital & Finance looked highly seductive: the interest was a table-topping 6.5% to 8%; they were authorised by the Financial Conduct Authority; and HMRC had granted the bonds tax-free ISA status. Yet after more than 11,000 investors poured £236m into the bonds – only for the company to collapse earlier this year – the FCA is now accused of its worst failure as a regulator for more than a decade.

Little of the money went into safe interest-bearing investments. Around £58m was taken as commission by the Brighton-based marketing company, Surge Financial, that promoted the bonds. As the administrators set out in clinical detail this week, much of the rest went into highly speculative property developments, some in the Dominican Republic, oil exploration off the Faroe Islands, and even a helicopter bought for a company controlled by LC&F.

As little as 20% of the money may ever be recovered, said Smith & Williamson, the administrators. “There are a number of highly suspicious transactions involving a small group of connected people which have led to large sums of bondholders’ money ending up in their personal possession or control,” the report said.

Last week the Serious Fraud Office arrested and later released four individuals in the Kent and Sussex area as it confirmed it was investigating LC&F.

Now the FCA has to decide how much fault lies in its handling of the company. At a crisis meeting of the FCA board on Thursday, the regulator discussed a demand from Nicky Morgan, chair of the Treasury select committee, for a formal independent investigation into regulatory failure. If it goes ahead, it will be only the second time that the FCA has been investigated this way – the first being the review of the watchdog’s handling of the Co-operative Bank crisis.

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