FCA Bans Promoting of Mini-Bonds to Small Investors
The Financial Conduct Authority (FCA) has announced it is set to ban the marketing of speculative mini-bonds to small investors using its product intervention powers.
The news comes after recent debacle surrounding the collapse of London Capital & Finance. The ban, set to be introduced on 1 January, will comes just as consultancies and financial managers encourage clients to place money into ISAs before the end of the tax year.
Currently, various mini-bonds have ISA status and would therefore be included in said advice, however the FCA believes many consumers may not have the expertise required to understand and therefore appropriately evaluate the risks involved in certain mini-bonds.
According to reports the ban will exclude mini-bonds that raise capital for individual companies or properties.
The intervention comes in regard of the recent administration of London Capital & Finance, whereby over 11,000 customers were left in debt and at a loss when the financial management firm collapsed after peddling 6.5% to 8% yearly returns on mini-bonds.
Subsequently, the FCA was under immediate scrutiny and was heavily criticised for not taking action when warned about the firm’s operations three years prior.
Both the FCA and LC&F are now under investigation by a leading high court judge, Dame Elizabeth Gloster, and the SFO respectively.
Andrew Bailey, Chief Executive of the FCA said: “We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risks involved. This risk is heightened by the arrival of the ISA season at the end of the tax year, since it is quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.
“In view of this risk, we have decided to complement our substantial existing actions with a further measure which will involve a ban on the promotion and mass marketing of speculative mini-bonds to retail consumers. We believe this will enable us to further consumer protection consistent with our regulatory principles and the FCA Mission.”
A press release from the FCA has also stated: “The FCA ban will mean that unlisted speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth. Marketing material produced or approved by an authorised firm will also have to include a specific risk warning and disclose any costs or payments to third parties that are deducted from the money raised from investors.”