The Financial Conduct Authority (FCA) will ban the mass marketing of speculative mini-bonds to retail customers from New Year’s Day 2020.
The ban will last for 12 months while the regulator consults on creating new permanent rules.
Mini-bonds refers to a range of investments. So for clarity, the FCA stated that the ban will refer to complex and opaque arrangements where funds raised are used to lend to a third party, invest in other companies, or purchase or develop properties.
The FCA made the decision to enact the ban without consultation after the mini-bonds market had proven to be rife with frauds and scams.
Before making the decision, the FCA had looked into the market over the last year. It had investigated over 80 cases of regulated activities where the actors involved lacked the proper authorization, assessed 200 cases of financial promotions, talked with internet service providers like Google, spoken with the Department of Culture, Media and sport to urge it to include financial harm in its laws regarding online harms, and developed tools for data analysis.
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 [Individual Savings Account] 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.
“In view of this risk, we have decided to complement our substantial existing actions with a further measure which will involve a ban on the promotion and mass marketing of speculative mini-bonds to retail consumers. We believe this will enable us to further consumer protection consistent with our regulatory principles and the FCA Mission.”
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