mini-bonds promotion ban

27 Nov 2019

FCA Imposes Ban on Promotion of Controversial ‘Mini-Bonds’

The Financial Conduct Authority (FCA) has announced that any marketing of so-called ‘mini-bonds’ will be banned.

‘Mini-bonds’ act as IOUs from companies to investors and are in place for a set period of time, throughout which the investor receives interest at a fixed rate. Investors’ money should then be repaid once this period of time is over. However, the returns depend on the performance of the business; should the business fail, investors could lose out.

These high-risk investments were at the centre of the recent London Capital and Finance controversy, which saw nearly 12,000 people lose money. The business, based in Tunbridge Wells, marketed the investments as ‘fixed-rate ISAs’, promising 8% interest rates, and issued unregulated ‘mini-bonds’ to the value of £263m. The firm has since collapsed and 11,600 investors have lost the majority of their money.

The FCA has since commissioned an independent review into its oversights relating to London Capital and Finance. They have implemented the ban alongside these investigations, although it doesn’t stop the sale of the ‘mini-bonds’; the ban solely applies to the marketing and promotion of them.

The ban comes into force in January and will initially remain in place for 12 months, whilst the regulator decides if a permanent ban is necessary. The FCA has only enforced such a ban on two previous occasions.

Andrew Bailey, the FCA’s chief executive, 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.”

By Melissa Jones