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ISSUE 85 | SEPTEMBER 2023
Collateral investors face new legal hurdles to FCA compensation INVESTORS in defunct peer-to-peer lending platform Collateral are facing new legal hurdles in their ongoing battle to get compensation from the regulator. Despite opening compensation proceedings on behalf of investors earlier this year, the Financial Conduct Authority (FCA) is believed to be relying on a legal argument which requires investors to prove that the regulator was the “sole or primary cause” of Collateral’s collapse before making any payouts. However, legal representatives have fought back, arguing that there is no evidence of this practice being used or referred to in any materials prior to June 2020. Collateral went into administration in February 2018, leaving its investors with losses of up to £18m. Earlier this summer, brothers Andrew and
Peter Currie, who were directors of Collateral, were sentenced to 2.5 years’ and 5.5 years’ imprisonment respectively for fraud and money laundering, following prosecution by the FCA. The FCA then began compensation proceedings to recover investor funds, but warned that almost two thirds of the
outstanding loan book cannot be recovered. However, investors are now concerned that the FCA’s “sole and primary cause” rule could supersede any legitimate compensation claim. “Facing the prospect of numerous high-value investment scandals where traditional investor compensation frameworks
would not apply, such as in the £237m London Capital and Finance (LCF) scandal, as well as smaller scams such as Collateral, Premier FX and Lendy, the FCA sought to introduce changes to the rules governing the complaints and Financial Regulators Complaints Commissioner (FRCC) process,” said a legal representative for the Collateral investors. “In particular, the FCA sought to cap complaints’ awards for financial loss at £10,000, and to refuse all pay-outs unless the FCA was the “sole or primary” cause of the loss. The cap was eventually abandoned but the “solely or primarily responsible” test was introduced last month as a new rule.” The FCA is believed to have delayed the proposed changes due to public outcry whilst so many high-profile cases were in progress. Following a >> 4