The UK financial watchdog has warned customers about investing in peer-to-peer lending through innovative finance ISAs (IFISAS).
The Financial Conduct Authority (FCA) said it had seen “high-risk” IFISAS, which invest money into products such as mini-bonds or peer-to-peer investments, being advertised alongside cash ISAs.
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However, these types of investments may not be covered by the Financial Services Compensation Scheme, therefore customers may lose money and be unable to reclaim losses.
In a statement the FCA said: “Investments held in IFISAs are high-risk with the money ultimately being invested in products like mini-bonds or peer-to-peer investments.
“These types of investments may not be protected by the Financial Services Compensation Scheme so customers may lose money invested or find it hard to get back.
“Anyone considering investing in an IFISA should carefully consider where their money is being invested before purchasing an IFISA.”
The FCA’s warning follows the collapse of mini-bond firm London Capital & Finance, which put the investments of thousands of bondholders at risk.
The watchdog has called for an independent investigation into the regulation of LCF following its failure.