Ban on marketing of speculative mini-bonds to retail customers comes into effect in the UK

Maria Nikolova

The restriction, which comes into force on January 1, 2020, is set to last for 12 months while the FCA consults on making permanent rules.

A ban on the mass marketing of speculative mini-bonds to retail customers comes into effect in the UK today.

The restriction, introduced by the Financial Conduct Authority, will last for 12 months while the regulator consults on making permanent rules.

The term mini-bond covers a range of investments. The ban applies to more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties. There are various exemptions including for listed mini-bonds, companies which raise funds for their own activities (other than the ones above) or to fund a single UK property investment.

The FCA has limited powers over the, usually unauthorised, issuers of speculative mini-bonds but can take action when an authorised firm approves or communicates a financial promotion, or directly advises on or sells, these products. Alongside this activity, there is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event.

The ban is introduced following the FCA’s conducting of an extensive program of work to tackle the risks for investors from mini-bonds, reflecting the real risk of consumer harm over the last year.

The regulator investigated more than 80 cases of regulated activities potentially being carried out without having the right FCA authorisation, and assessed over 200 cases of financial promotions that appeared not to have complied with the FCA rules.

The restriction means 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.

Firms which approve financial promotions are already required to ensure that those promotions comply with FCA rules.

Although the FCA’s announcement about the ban does not mention London Capital & Finance, one can safely suppose that this change has to do with LCF’s failure.

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