FCA slaps permanent ban on retail 'mini-bonds' marketing

The UK's financial regulator said it was banning permanently the marketing of risky ‘mini bonds’ to retail investors in response to the collapse of London Capital & Finance that left more than 11,000 small investors with losses of £237m.

A temporary ban was introduced without consultation in January by the Financial Conduct Authority (FCA). Thursday’s decision also included broadening its scope to include other speculative investments that were not regularly traded.

The ban would apply to the most “complex and opaque arrangements where the funds raised are used to lend to a third party, or to buy or acquire investments, or to buy or fund the construction of property”, the FCA said.

Thousands of people who invested in a high-risk bond scheme marketed as a "fixed rate ISA" now face getting a fraction of their money back after LCF collapsed last year. Many of them were first-time investors using cash from retirement finds or inheritances and attracted by claims of high returns.

The bonds were not regulated by the FCA, which only had power over marketing and financial advice on the products.

Under the ban, products caught by the rules can only be promoted to investors that firms know are "sophisticated or high net worth", the FCA said.

"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."

FCA interim executive director of strategy and competition Sheldon Mills said: “We know that investing in these types of products can lead to unexpected and significant loses for investors . . . 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.”

The regulator's chairman on Tuesday renewed calls for a crackdown on scam ads posted on internet search giant Google, which he said was earning “millions” from the practice, forcing the FCA to take out its own warning ads on the platform.

“We need a framework to stop social media platforms and search engines from promoting unsuitable investments, including scams, to ordinary retail consumers,” Charles Randell said in a speech on the financial system's structure after the coronavirus crisis.

“It is frankly absurd that the FCA is paying hundreds of thousands of pounds to Google to warn consumers against investment advertisements from which Google is already receiving millions in revenue.”