City regulator confirms mini-bond marketing ban
The Financial Conduct Authority has today confirmed its permanent ban on the marketing of mini-bonds to retail investors amid concerns over losses.
It comes after a series of scandals involving unregulated bonds, including the collapse of London Capital & Finance (LCF) last year.
The confirmation follows a temporary ban introduced in January after the regulator found the risks linked to the mass-marketing of mini-bonds was sufficiently “serious and immediate” to justify intervention without consultation.
It later published a consultation paper over the summer setting out the scope of the ban.
Mini-bonds are not regulated by the FCA, and concerns have been raised that ordinary investors do not understand the risks they carry and are unable to afford the potential financial losses involved.
LCF collapsed in January 2019 after issuing mini-bonds worth £236m to over 11,000 investors.
The FCA said the new rules will come into effect on 1 January 2021 and will bring listed bonds with similar features to other speculative illiquid securities, and which are not regularly traded, within the scope of the ban.
“‘We’ve today confirmed our proposals to make the speculative mini-bond ban permanent and extend its scope. These products are high risk and are often designed to be hard to understand,” said Sheldon Mills, interim executive director of strategy and competition.
“Consumers should always be wary of any investment promising high returns while downplaying risks.”
In its consultation paper published over the summer the FCA said products which fall under the ban can only be marketed to investors who firms know are “sophisticated or high net worth”.
It also said that marketing material will also need to disclose costs or payments to third parties which are deducted by the funds raised by retail investors.