Following the appointment of joint administrators on 30 January 2019, on 7
February 2019 the direction referred to at paragraph 1(d) below was revoked

SECOND SUPERVISORY NOTICE

To:
London Capital & Finance plc

Of:
The Old Coach House, Eridge Park, Eridge Green, Tunbridge
Wells, East Sussex TN3 9JS

FCA reference
number:
722603

DIRECTION

1.
By way of a First Supervisory Notice dated 10 December 2018 the Financial
Conduct Authority (“the FCA”) directed London Capital & Finance plc (“LCF”)
to immediately:

(a) Withdraw from its website (www.londoncapitalandfinance.co.uk) all

communications relating to its “Fixed Rate ISA or Bond”;

(b) Withdraw all other communications that relate to its “Fixed Rate ISA or

Bond”, whether those communications appear on Facebook, Youtube,
www.top-isa.rates.co.uk, www.best-savings-rate.co.uk, as a result of
Google searches or any other platform or advertising medium;

(c) Refrain from making any communications that in substance replicated

the claims made on the firm’s website about the “Fixed Rate ISA or
Bond”;

(d) Publish on its website the following statement prominently at the top of

the homepage “The Financial Conduct Authority has directed London
Capital & Finance plc to withdraw all of its existing marketing materials
in relation to LCF’s Fixed Rate ISA or Bond”.

2.
The above direction (“the Direction”) was made for the reasons given below
and pursuant to section 137S(5) of the Financial Services and Markets Act
2000 (“the Act”).

3. On 13 December 2018 the FCA imposed a requirement on LCF under s55L of

the Act such that “LCF may not communicate or approve any invitation or
inducement to engage in investment activity (i.e. financial promotion)” (this
requirement was amongst others imposed on receipt of a voluntary
application by LCF).

4. Given that LCF is now not permitted to communicate or approve any financial

promotions paragraphs 1(a) to (c) of the Direction are no longer necessary
and are hereby revoked. Paragraph 1(d) of the Direction is not revoked.

5. The FCA’s reasons for issuing the Direction are set out below and LCF’s

representations on the Direction are set out in Annex A to this Notice.

SUMMARY REASONS FOR ISSUING THE DIRECTION

6. The FCA considers that LCF’s communications in relation to its “Fixed Rate ISA

or Bond” were misleading, not fair and not clear, in breach of FCA rule COBS
4.2.1R. The FCA considers the Direction was proportionate in the
circumstances. In particular the FCA considers that the publication required
under paragraph 1(d) above was a proportionate way at that stage of bringing
the FCA’s concerns to the attention of all investors and potential investors
(including
investors
seeking
to
rollover
their
existing
investments).

Notwithstanding that the FCA now intends to publish such information about
the details in this Notice as it considers appropriate, the FCA considers that
the Direction in paragraph 1(d) should remain in place so that anyone viewing
the LCF website is alerted to the FCA’s concerns.

FACTS AND MATTERS CONCERNING THE PROMOTIONS

The LCF Bonds are not ISA qualifying investments

7. LCF was marketing its bonds on its website with statements including the

(a)
“6.5% p.a. 2 year Fixed Rate ISA or Bond”;

(b)
“8.0% p.a.3 year Fixed Rate ISA or Bond”;

(c)
“8.95% p.a. 5 year Fixed Rate ISA or Bond”;

(d)
“The interest on our innovative finance ISAs is tax free”;

(e)
“[LCF] is a leading provider of ISAs”; and

(f)
”Our investments are non-transferable”.

8. In order for bonds to be qualifying investments for an innovative finance ISA

they have to meet certain conditions, including that they are transferable
(Regulation 8A(2) and (4) of the Individual Savings Account Regulations
1998/1870). LCF’s website made clear that its Bonds are non-transferable. It
therefore appears that LCF’s Bonds do not qualify to be held in an ISA account
and that investors were being misled by being told the interest they earn will
be tax free.

Undue prominence given to the firm’s FCA authorisation despite the bonds not
being regulated or having FSCS protection

9. LCF’s website prominently displayed the fact the firm is “Authorised and

regulated by the FCA". Whilst two important caveats to this were contained
on the website, namely that:

(a) “Whilst [LCF] is regulated by the FCA, the bonds offered herein are

structured as corporate loans to [LCF] and are therefore not regulated
by the FCA”

(b) “these bonds are not protected under the FSCS”

these important caveats were not given the same prominence as the
statements
about
FCA
authorisation.
The
website
was
therefore

misleading.

Past performance warning insufficiently prominent

10. The website prominently proclaimed “Over £224 million invested to date,

100% track record”. Whilst there was also a past performance warning on
the website stating “Please note that past performance is not an indicator of
future results” this was contained in a footnote in small text.

11. The FCA considers that the past performance warning was not prominent

enough on the homepage, especially given the prominence of the “100% track
record” statement. FCA rules make clear than an indication of past
performance must satisfy certain conditions (COBS 4.6.2R (1-6)). In
particular the FCA considers that LCF’s footnoted warning about past
performance not being an indicator of future results was not prominent as
required by COBS 4.6.2(4)R.

Inappropriate comparison with cash savings

12. The website contained the headline “LOOKING FOR HIGHER RETURNS THAN

THE HIGH STREET”. This was comparing what is a high-risk investment (the
LCF Bonds) with cash savings.


13. COBS 4.5.6R requires that “If information compares…relevant investments…a

firm must ensure that the comparison is meaningful and presented in a fair
and balanced way”. Whilst the website does contain balancing statements,
such as “Investing is bonds means your capital is at risk and payments are
not guaranteed if borrowers default”, in the FCA’s view the balancing
statements needed to be as prominent as the headline in order for this
comparison to be fair, clear and not misleading.

Other communications that relate to LCF’s “Fixed Rate ISA or Bond”

14. LCF’s Bonds were also marketed via Facebook, Youtube, www.top-

isa.rates.co.uk, www.best-savings-rate.co.uk and Google searches in a way
that linked to LCF’s website.


PROCEDURE

Decision Maker

15. The decision which gave rise to the obligation to give this Notice was made by

the Regulatory Transactions Committee.

16. This Notice is given to LCF pursuant to section 137S(8), (9) and (10) of the

Act.

17. In accordance with section 137S(11) of the Act, the period for making

representations in relation to the Direction having ended, the FCA intends to
publish such information about the matter as it considers appropriate.

Tribunal

18. LCF has the right to refer the matter to which this Notice relates to the

Tribunal. Under paragraph 2(2) of Schedule 3 of the Tribunal Procedure
(Upper Tribunal) Rules 2008, LCF has 28 days from the date on which this
Notice is given to it to refer the matter to the Tribunal.

19. A reference to the Tribunal can be made by way of a reference notice (Form

FTC3) signed by LCF and filed with a copy of this Notice. The Tribunal’s
contact details are: The Upper Tribunal, Tax and Chancery Chamber, 5th
Floor, The Rolls Building, Fetter Lane, London EC4A 1NL (telephone: 020 7612
9730; email: uttc@hmcts.gsi.gov.uk).

20. For further information on the Tribunal LCF should refer to the HM Courts and

Tribunal Service website. The following page includes guidance on making a
reference to the Tribunal, the relevant form to complete (Form FTC3) and
notes on that form:

21. LCF should note that a copy of the reference notice (Form FTC3) must also be

sent to the FCA at the same time as filing a reference with the Tribunal. A
copy of the reference notice should be sent to Edmund Weighell at the FCA,
email edmund.weighell@fca.org.uk.

Sarah Rapson
Chair, Regulatory Transactions Committee


ANNEX A – LCF’S REPRESENTATIONS ON THE DIRECTION


This Annex sets out a summary of the representations made by LCF in relation to
the issues dealt with under each of the subheadings in the “Fact and Matters
Concerning the Promotions” section of the Notice, and the FCA’s response to
those representations.

The LCF Bonds are not ISA qualifying investments

LCF’s representations

LCF asserted that it had had conversations the Tax Incentivised Savings
Association (TISA) and HM Revenue and Customs (HMRC) as part of LCF’s
application to HMRC for permission to become and ISA manager. LCF stated that
its understanding, in particular from HMRC, following those conversations was
that the LCF Bond was an ISA qualifying investment. LCF stated that it considers
it should not be unduly penalised if there has been a misunderstanding.

FCA’s response

The purpose of the Direction was not to penalise LCF, it was to ensure that
investors in LCF’s Bonds are not misled. The process of applying to be an ISA
manager does not include an assessment by HMRC of whether investments to be
managed are qualifying investments – this was LCF’s responsibility. LCF’s Bonds
do not appear to qualify to be held in an innovative finance ISA account because,
as was made clear on LCF’s website, they are non-transferable.

Undue prominence given to the firm’s FCA authorisation despite the
bonds not being regulated or having FSCS protection

LCF’s representations

LCF stated that it agrees with the points made in the Notice and is prepared to
remedy the issue going forward.

FCA’s response

Whilst the acknowledgment of the problem is noted, the FCA will consider any
application to lift the requirement imposed on LCF on 13 December 2018 (see
paragraph 3 of the Notice – LCF may not communicate or approve any financial
promotion) as and when such an application is received.

Past performance warning insufficiently prominent

LCF’s representations

LCF stated that it agrees that the past performance warning should be in larger
font.

FCA’s response

Whilst the acknowledgment of the problem is noted, the FCA will consider any
application to lift the requirement imposed on LCF on 13 December 2018 (see
paragraph 3 of the Notice – LCF may not communicate or approve any financial
promotion) as and when such an application is received.

Inappropriate comparison with cash savings

LCF’s representations

LCF stated that it agrees that the relevant part of its website needed to be
changed.

FCA’s response

Whilst the acknowledgment of the problem is noted, the FCA will consider any
application to lift the requirement imposed on LCF on 13 December 2018 (see
paragraph 3 of the Notice – LCF may not communicate or approve any financial
promotion) as and when such an application is received.

Other communications that relate to LCF’s “Fixed Rate ISA or Bond”


LCF’s representations

LCF stated that it has little control over third party websites, claiming that the
websites referred to at paragraph 14 above had “independently” removed
references to the LCF Bonds following the FCA’s Direction.

FCA’s response

The FCA notes that the two websites removed the references to LCF’s Bonds very
shortly after the First Supervisory Notice was issued on 10 December 2018.