The Financial Conduct Authority (FCA) has expanded the scope of its ban on the marketing of mini-bonds to retail investors.
The ban will now include listed bonds with similar features to unlisted mini-bonds after the regulator saw evidence that some UK-based issuers of mini-bonds had gained admission to listing for bonds following a temporary ban on unlisted speculative bonds.
The original temporary ban came into force in January 2020 whilst the FCA underwent a consultation on permanent rules.
The expanded ban was welcomed by the Personal Finance Society.
Keith Richards, chief executive of the Personal Finance Society, said: “It is great to see the regulator take action to protect consumers. This permanent ban being extended makes sense as these products were being mass marketed when mini-bonds and similar listed securities aren’t suitable for most retail investors.
“Some of these mini-bonds and securities were being marketed as offering returns of 6.5% to 8% a year. We would all urge anyone being offered returns that seem too good to be true to be aware that they probably are and to seek financial advice as to whether an investment is suitable for them.”
Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “We’ve today confirmed our proposals to make the speculative mini-bond ban permanent and extend its scope.
“These products are high risk and are often designed to be hard to understand.
“Consumers should always be wary of any investment promising high returns while downplaying risks.”
The FCA also reiterated that online platforms, such as Google, play an increasingly significant role in communicating financial promotions to consumers. It said: “These firms need to do more to stamp out fraud and misleading adverts and bear clear legal liability for the financial promotions they highlight.”
Over 11,600 investors put money into what they believed were relatively safe bonds before the collapse of failed £236m mini-bond firm London Capital & Finance in January 2019. It was the first high profile case of its kind and led to investigations into the FCA’s regulation of mini-bonds.
Adrian Lowcock, head of personal investing at investment platform Willis Owen, also welcomed the ban. He said: “We’ve argued for a long time that these highly speculative investments are not suitable for investors, so this is ruling is a solid win for consumers.
“Mini-bonds are painted as an easily accessible investment that gives investors freebies alongside financial returns, but the truth is far more complicated. These are being marketed directly to consumers who often don’t have the expertise to assess them or understand the real risks involved. It needed to be stopped, and thankfully the FCA has acted swiftly.
“The market is fragmented, there is no easy exit for investors who change their minds – with many investments locking up capital for years – and there is next to no help for consumers from independent experts to truly assess the risks facing the businesses which issue these bonds. Good riddance to them.”