The bill consists of three clauses and would make provision for compensation for two separate issues.
Clause 1 of the bill would allow the Treasury to incur costs to establish a compensation scheme for bondholders of London Capital & Finance plc (LCF), a company which went into administration in January 2019. LCF sold non-transferable debt securities, also called ‘mini-bonds’. Whilst the firm was authorised by the Financial Conduct Authority (FCA), the LCF’s issuance of mini bonds was not a regulated activity. When LCF went into administration the majority of its investors were not eligible for compensation from the Financial Services Compensation Scheme (FSCS) because the issuance of LCF’s minibonds was not a regulated activity. Following an investigation into the company by Dame Elizabeth Gloster, a former Court of Appeal judge, the Government decided to establish a compensation scheme for bondholders the FSCS does not cover. The compensation scheme would provide 80% of the LCF bondholders’ initial investment, up to a maximum of £68,000.
Clause 2 would provide a power to the secretary of state to make a loan to the board of the Pension Protection Fund (PPF) and for that loan to form a part of the funds of the Fraud Compensation Fund (FCF). The FCF pays compensation to trustees or scheme managers of eligible occupational pension schemes where the employer has become insolvent and scheme assets have been reduced due to an offence involving dishonesty. The FCF is funded by a levy on eligible pension schemes. The PPF said that it was not clear whether a particular form of fraud called ‘pension liberation fraud’ fell within the remit of FCF. This kind of fraud involves people being persuaded to transfer their pension savings from legitimate schemes to fraudulent ones, with the promise of high investment returns. It initiated court proceedings to test this. In November 2020, the High Court ruled that these kinds of claims were eligible for compensation from the FCF. Clause 2 would enable the secretary of state to loan money to the board of the PPF to cover the costs of compensation. This loan would be repaid by the FCF levy on eligible pension schemes.
The bill had cross party support and was unamended in the House of Commons. However, some concerns were raised by the Opposition about wider issues such as the performance of the FCA and combatting online fraud.
The Speaker of the House of Commons has certified it as a money bill.