FCA ban on mini-bond marketing to be made permanent

The FCA has announced new plans to make its ban on the mass-marketing of speculative mini-bonds towards retail investors to be made permanent.

The regulator introduced the ban in January following concerns that speculative mini-bonds were being promoted to retail investors who could neither understand the risks involved, or afford the potential financial losses.

By introducing the rules permanently, the FCA suggested it is proposing a small number of clarifications to the ban introduced in January, including bringing listed bonds with similar features to speculative illiquid securities, and which are not regularly traded within the scope of the ban.

The FCA ban will mean that products caught by the rules can only be promoted to investors that firms know are high net worth. The regulator added that marketing material approved by an authorised firm will also have to include a specific risk warning and disclose any costs to third parties that are deducted from money raised from investors.

FCA interim executive director of strategy and competition, Sheldon Mills, said: “We have already taken a wide range of action in order to protect consumers and by making the ban permanent, we aim to prevent people investing in complex, high-risk products which are often designed to be hard to understand.

“Since we introduced the marketing ban, we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors. We are very concerned about this and so we have proposed extending the scope of the ban.”

Commenting on the FCA’s announcement, Personal Finance Society chief executive, Keith Richards, said the permanent ban “makes sense”.

“These products were being mass marketed when mini-bonds aren’t suitable for most retail investors,” he added.
“Prevention is definitely better than cure. These products use false pretences to make legitimate investment products look uncompetitive, advisers get tarred with the same brush when the provider’s mis-selling is exposed and these products result in increased Financial Services Compensation Scheme (FSCS) levy impact if the people selling the bonds are in the same FSCS category as advisers.”

AJ Bell personal finance analyst, Laura Suter, added: “Considering interest rates have seen two further cuts this year and there is a dearth of options for savers to earn a decent interest rate, it feels certain that many would have been drawn into these products at the moment, if marketing was more prevalent.

“Most of these products aren’t suitable for the average person on the street; they aren’t regulated, they aren’t covered by the compensation scheme and they are higher risk than many other ways of investing.
“It was inevitable that the unscrupulous people attempting to sell these products to the mass market would transfer into marketing other products, so it’s good news that the regulator has extended the ban to other similar products. However, you only have to Google a few key terms like ‘high interest savings accounts’ to stumble across mini-bond or similar high risk offerings, meaning more still needs to be done to protect consumers.”

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