UK regulator to ban marketing of speculative mini-bonds to retail customers

Maria Nikolova

The ban will come into force on January 1, 2020 and will last for 12 months.

The UK Financial Conduct Authority (FCA) today announces it will ban the mass marketing of speculative mini-bonds to retail customers. The ban is introduced without consultation, as the FCA is using its product intervention powers.

The restriction will come into effect on January 1, 2020 and will last for 12 months while the FCA consults on making permanent rules.

The ban announced will apply 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 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.

The FCA also intends to launch a communications campaign to improve consumer awareness of risks and to inform consumers about what they should consider before investing in high-risk investments. The regulator says it continues to work with HM Treasury on its review into the regulatory framework for the issuance of non-transferable debt securities (NTDS).

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

In June this year, the regulator explained that the mini-bonds market has changed over recent years, with more complex mini-bonds being issued and marketed to retail investors. Issuers of these more complex products have often been able to rely on the same exclusion as ordinary commercial companies to issue their securities without the need for authorisation. In a low-interest environment, these high-risk investments, offering the potential of higher returns on capital, have often been offered as retail investments.

Mini-bonds have drawn widespread attention after the collapse of LCF, which has left approximately 14,000 consumers who had invested in its mini-bonds at risk of losses.

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