Retail bonds considered for compensation

PROVIDERS of a new high-profile investment product are actively lobbying to be included in a government-run compensation programme, City A.M. has learned.

Oliver Cardigan, a director at Numis Securities, said his company has had discussions with “top people in government” in the hope of extending consumer protection to retail bonds.

Numis want the FSA-controlled Financial Services Compensation Scheme (FSCS) – which guarantees up to £85,000 of personal savings with a bank or building society – to be extended to cover the balance of an individual’s investment in retail bonds.

Retail bonds enable individual investors to buy debt directly from a company. The UK market has grown at a fast rate since 2010, with investors attracted by yields that can be upwards of 7.5 per cent. 

Under current rules the entire investment is at risk if a company is liquidated. Including retail bonds in any compensation scheme is likely to demystify the product and substantially push up demand for retail bonds.

“Currently the vast majority of these issues are taken up by discretionary fund managers, rather than self-traders,” Cardigan explained. “There are ads in the newspaper [but] because the FSA is so cagey about the risk of any lawsuits you can’t put a Facebook campaign or a TV campaign because all the regulatory language would spoilt the effect.”

Numis is preparing to unveil details of the first retail bond issue of 2013 ­– involving FTSE 250 oil and gas explorer EnQuest – within the next week.

According to Henrietta Podd, head of debt advice at Canaccord Genuity, there were 16 new retail issues in 2012, raising a total of £1.5bn – up 78 per cent year-on-year. She said the average ticket bought by investors in retail issues managed by her company is around £20,000.