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UK watchdog bans promotion of mini-bonds to retail investors

By Marianne Curphey

Financial Conduct Authority is concerned that many promotions are fraudulent

The UK’s Financial Conduct Authority (FCA) is to ban the mass marketing of speculative mini-bonds to UK consumers in time for the upcoming ISA season.

The London city watchdog announced today it was introducing the restriction from 1 January 2020 without consultation. It will prevent these products being promoted to retail investors as suitable for Individual Savings Accounts (ISAs). The ban will last for 12 months while the FCA consults on making permanent rules.

The term ‘mini-bond’ refers to a range of investments. The new restrictions will apply to complex bonds where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties.

Under its product intervention powers, the FCA does not need to consult the firms affected.

The FCA has limited powers over issuers of speculative ‘mini-bonds’ because the firms involved are usually unauthorised by the watchdog. However, it can take action when an authorised firm promotes or sells such products.

The FCA said it was concerned that an increasing number of promotions were frauds or scams. It has been working with Google to take down websites and has been using web scraping to try to identify mini-bond promotions.

Andrew Bailey, Chief Executive of the FCA 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.”

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

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FURTHER READING: FCA fines UK interdealer broker £15.4 million

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