Thursday 18 June 2020 8:07 am

FCA to make mini-bond marketing ban permanent following LCF scandal

The Financial Conduct Authority (FCA) has permanently banned the mass marketing of speculative mini-bonds to ordinary investors. 

The ban on the mass marketing of illiquid securities comes after a series of scandals involving unregulated bonds, including the collapse of London Capital & Finance (LCF) last year. 

Read more: Bank of England governor Bailey to be interview by London Capital & Finance inquiry

The FCA introduced a temporary ban in January amid concerns the products could cause harm to retail investors following a spate of losses, and this morning announced plans to make the restrictions permanent.

“We know that investing in these types of products can lead to unexpected and significant losses for investors,” said Sheldon Mills, the FCA’s interim executive director of strategy and competition.

“We have already taken a wide range of action in order to protect consumers and by making the ban permanent we aim to prevent people investing in complex, high risk products which are often designed to be hard to understand,” he added. 

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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 Serious Fraud Office is investigating the collapse, and Bank of England governor Andrew Bailey, who led the FCA at the time, is set to be interviewed by an inquiry into how regulators supervised the firm. 

Read more: FSCS sets aside £44m to pay London Capital & Finance compensation

The watchdog said that since the introduction of the ban in January, firms had begun to market similarly risky bonds that fell outside the restrictions to ordinary investors. The FCA said it would extend the ban to cover some of these. 

“Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors. We are very concerned about this and so we have proposed extending the scope of the ban,” Mills said. 

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