FCA issues advice to retail investors about mini-bonds

Maria Nikolova

The consumer notice is published amid growing volume of questions about London Capital & Finance and uncertainty on whether its clients are entitled to any compensation.

The UK Financial Conduct Authority (FCA) has published a notice to retail investors about mini-bonds, with the timing of publication apparently having to do with the recent collapse of London Capital & Finance (LCF).

The UK regulator has already sent a “Dear CEO” letter regarding mini-bonds. But the latest notice targets consumers amid a growing volume of questions regarding whether the clients of LCF will be eligible to any compensation.

In its consumer notice, the FCA says that a business does not have to be regulated by the FCA to raise capital by issuing shares or debt securities (whether ‘mini-bonds’ or otherwise). However, any investment services provided to these investments are regulated in the usual way. For instance, if an authorised firm provides investment advice about mini-bonds, it must make sure it is suitable. Mini-bonds are sometimes distributed by an authorised person (eg online investment platforms), and if so that person will be subject to the FCA rules.

In addition, financial promotions will usually need to be approved by an FCA-authorised person. They must check that the promotion complies with the FCA rules – for example, that it is clear, fair and not misleading.

Mini-bonds are not like deposits. There is normally no protection by the Financial Services Compensation Scheme (FSCS) if the issuer is unable to repay investors’ capital. This may mean there is no guarantee clients of a company will receive any of their money back.

The FCA explains that if a consumer received a regulated investment service, such as investment advice, about the mini-bond from an authorised person and they failed to meet the FCA standards, this consumer may be able to complain to the Financial Ombudsman Service. If the authorised firm has gone out of business, consumers may be able to bring a claim to the FSCS.

If consumers received no service from an authorised person, it is unlikely that they will have recourse to either the Financial Ombudsman Service or the FSCS.

In the meantime, clients of LCF may check for updates this dedicated page by the FSCS. 

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