FCA announces ban on mini-bonds to retail consumers

The FCA has announced it will ban the mass marketing of speculative mini-bonds to retail customers.

The regulator said it is introducing the restriction without consultation – by using its product intervention powers – which will come into force on 1 January 2020 and last for 12 months as the FCA consults on reaching permanent rules.

The term mini-bond refers to a range of investments, and the FCA indicated the ban 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.

The FCA noted there will be some exemptions from the restriction, including for listed mini-bonds, companies raising funds for their own activities, or to fund a single UK property investment.

FCA chief executive, Andrew Bailey, said: “We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risks involved.

“This risk is heightened by the arrival of the ISA season at the end of the tax year, since it is quite common for mini-bonds to have ISA status, or to claim such even though they do not have the status.

“In view of this risk, we have decided to complement our substantial existing actions with a further measure which will involve a ban on the promotion and mass marketing of speculative mini-bonds to retail consumers. We believe this will enable us to further consumer protection consistent with our regulatory principles and the FCA Mission.”

The FCA also indicated its ban will mean that unlisted speculative mini-bonds can only be promoted to investors that firms know are sophisticated, or high net worth.

According to the regulator, any 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.

AJ Bell personal finance analyst, Laura Suter, commented: “It seems unlikely that the regulator will relax the ban after the first 12 months. However, we could see a last flurry of advertising before 2019 is out and the ban comes in.

“Investors should also be aware that the regulator has said there is evidence of a growing incidence of promotions which are scams, and the marketing ban will not help investors here because the scams are illegal. Investors will therefore still need to be on their guard for scams and be wary of anything that looks too good to be true.”

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