Financial Conduct Authority proposes permanent ban on mini-bonds

The Financial Conduct Authority (FCA) has today announced proposals to make the ban on mini-bonds permanent.

The FCA introduced the ban on the mass-marketing of speculative illiquid securities in January, following concerns that speculative mini-bonds were being promoted to retail investors who neither understood the risks involved, nor could afford the potential financial losses.

In introducing the rules permanently, the FCA is proposing a small number of changes and clarifications to the ban introduced in January.

This includes bringing listed bonds with similar features to speculative illiquid securities and which are not regularly traded within the scope of the ban.

The ban will 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.

It will mean that products caught by the rules 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.

Sheldon Mills, interim executive director of strategy and competition at the FCA, commented: “We know that investing in these types of products can lead to unexpected and significant losses for investors.

“We have already taken a wide range of action in order to protect consumers and 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.

“Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors.

“We are very concerned about this and so we have proposed extending the scope of the ban.”