Question to the HM Treasury:

To ask the Chancellor of the Exchequer, what discussions he had with people who lost their life savings as a result of the collapse of Blackmore Bond Plc prior to making the decision not to establish a compensation scheme.

I am acutely aware of the situation at Blackmore Bond plc, and I am mindful that many individuals have lost money after investing in minibonds with the firm, which must be extremely distressing.

The Financial Services Compensation Scheme (FSCS) is the compensation scheme of last resort for financial services. The FSCS is an independent non-governmental body that carries out its compensation function within rules set by the Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA), who are also independent of Government. Its scope is strictly limited and it can only pay compensation when a relevant regulated activity has been undertaken.

It is an important point of principle that the government does not step in to pay compensation in respect of failed financial services firms that fall outside of the FSCS. Doing so would create the wrong set of incentives for individuals and an unnecessary burden on the taxpayer.

However, as you will be aware, the government has taken the extraordinary step of establishing a compensation scheme for another failed minibond firm, London Capital & Finance (LCF). The government has considered the issues carefully, and the situation at LCF is unique and exceptional. While other minibond firms have failed, LCF is the only minibond firm which was authorised by the FCA and sold bonds in order to ‘on-lend’ to other companies. In particular, Blackmore Bond plc was not authorised by the FCA, and was not undertaking a regulated activity.

While I have not seen evidence that would indicate that the regulatory failings at the FCA were the primary cause of the losses incurred by LCF bondholders, they are a significant factor that the government has taken into account when deciding to establish this scheme.