The Financial Conduct Authority (FCA) has issued a warning to people investing in high-risk schemes offered by unregulated firms without appreciating the risks involved.

Many firms offering these products don’t need to be authorised by the FCA, as they rely on exemptions in the law that take them out of the regulator’s remit.

If a firm offering an investment is not regulated by the FCA, there are generally fewer protections. Investors are unlikely to be able to take complaints to the Financial Ombudsman Service and or to make a claim through the Financial Services Compensation Scheme.

Some of the riskier products that the FCA has highlighted include unlisted loan notes or mini-bonds, which can come in several forms and are often used to finance property developments via a third-party firm.

“People selling high risk, unregulated investments typically draw people in with enticing websites, marketing campaigns and social media finfluencer promotions,” a statement from the FCA said. “If someone introduces you to the investment, they may take a fee for doing so. This would generally be taken from the amount you've invested.

“The opportunities we have seen offered typically come with a fixed, high rate of return, which is a promised annual rate of interest paid to investors.

“However, behind the glossy promotional and eye-catching brochures can sit high risk, opaque or even non-existent enterprises.”

The FCA, which has a register for investors to check whether a firm is regulated, also urged that some investments, including unlisted loan-note or mini-bond investments, are “not suitable for everyday investors”.

The regulator warned that exemptions in the law mean certain high-risk investments can be marketed directly to those considered wealthy or if they’re an experienced investor, known as a “sophisticated investor”, under strict criteria.

“If you’re asked to confirm that you are a sophisticated investor, think carefully about whether you genuinely have experience of similar high-risk investments, and whether it’s in your best interest,” the regulator added.

“Otherwise, you could be exposed to investment opportunities that aren’t appropriate and certain regulatory protections will not apply.”

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