OCREUS Group

The FCA is using special powers to ban the marketing to retail investors of unregulated mini bonds, which lay behind a scandal that left 11,600 customers at risk of losing their savings.

The FCA said in a statement on Tuesday that it was intervening to ban the products’ promotion from January after an explosion of mass marketing of mini bonds, which are typically not covered by the Financial Services Compensation Scheme. While the products are unregulated, the advertising of them is overseen by the watchdog.

The ban will last for a year while the Treasury and FCA develop permanent rules, the regulator added.

The £236m collapse of London Capital & Finance, which promoted and sold the unregulated minibonds to 11,600 pensioners and first-time investors, sparked an investigation by the FCA, as well as a parallel criminal probe. The watchdog has seen more than 200 other cases where financial promotions did not appear to be in line with its rules, the regulator said in a statement on Tuesday.

The LCF scandal underscored the confusing protection rules for consumers. The company claimed the mini bonds — some offering returns of as high as 8 per cent — were fixed-rate ISAs and that the group was authorised by the Treasury as an ISA manager.

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

As well as criminal and regulatory probes, the LCF case has prompted a statutory investigation into the FCA’s own actions after accusations by bondholders and politicians that it was too slow to respond to red flags.

The FCA’s decree will only apply to unlisted mini bonds and to retail investors. Companies promoting mini bonds will still be able to target sophisticated investors or high-net worth individuals.

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Categories: Financial

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