FCA bans promotion of mini-bonds for good

Regulators have slapped a permanent ban on firms pushing risky mini-bonds to ordinary investors after thousands lost money in a series of devastating collapses.

The Financial Conduct Authority first prohibited further mass-marketing of the speculative financial products in January, to protect investors ahead of the Isa season.

Today, it confirmed its concerns that mini-bonds – which involve buying company debt for a set period in exchange for regular interest payments – were being promoted to investors who neither understood the risks nor could afford potential losses.

The move follows heavy lobbying after the collapse of London Capital & Finance swept away the savings of many elderly and casual investors, who were hoodwinked into believing they would receive returns of 8 per cent from tax-free Isas.

Meanwhile, investors in high-profile mini-bonds issued by Mexican food chain Chilango also suffered heavy losses. 

These investment products have always come with serious risk warnings, including from This is Money whenever we write about them. 

With mini-bonds, the money you make back entirely depends on the firms issuing them not going bust. 

Retail bonds work the same way but are listed on the London Stock Exchange’s Orb market, and tradeable before the maturity date.

The FCA has tweaked the rules this time to cover illiquid tradeable bonds, but there are exemptions to its marketing ban for retail bonds that are heavily traded, companies raising funds for their own commercial or industrial activities, and products which fund a single UK income-generating property investment.

Sheldon Mills, interim executive director of strategy and competition at the FCA, said: ‘We know that investing in these types of products can lead to unexpected and significant loses 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.’

The FCA says its ban will mean that products caught by the rules can only be promoted to investors that firms know are sophisticated or high net worth. 

Its advice to consumers about mini-bonds is here.