After what seems like an eternity the FCA has confirmed that it is to permanently ban the marketing of so-called Mini Bonds to retail investors.
The products and the dubious marketing techniques used to promote came into public view with the collapse of London Capital and Finance which offered returns of 8% to investors in Minin bonds but which put the funds of 14,000 investors at risk and caused the FCA to sue 13 individuals over what has been described as a £178 million fraud.
Complaints about LCF were first registered in November 2015 however the business and the Mini-Bonds it promoted were not directly regulated by the FCA, at the time the FCAs sole involvement was the oversight of third-party regulated firms who signed off on LCFs financial promotions.
That yawning gap in regulatory reach and responsibilities allowed LCF to continue to trade until late in 2018
The LCF debacle was just one of several such incidents, the latest involves £46 million invested by retail clients in the Blackmore Mini Bond scheme. Blackmore itself collapsed into administration in April and its investors were warned last month that the property portfolio that they believed they were investing in was likely worth just a fraction of its “original value” and that they now faced likely losses of 100% of their investments.
Because the Mini Bond market was not regulated by the FCA and the sale of Mini Bonds was not considered to be a regulated activity, investors in MinI Bonds were not covered by the Financial Services Compensation Schemes or FSCS, either.
The FCA which has been accused of moving at glacial speed over the Mini Bond issue confirmed yesterday that the temporary ban that it put in place in January on the marketing of Mini Bonds to retail clients will become permanent.
But the products themselves will survive and can be marketed to professional clients and other sophisticated investors, though new promotions will have to contain a risk warning.
These FCA’s moves will provide a degree of protection but it appears to have stopped short of regulating or prohibiting the issuance and sale of Mini Bonds by unauthorised firms, which was the issue at the heart of LCF scandal. In an era of low-interest rates that leaves the door open to slick marketers offering high returns on dubious investment schemes which could tempt investors into parting with their cash once more.
Our advice at the Good Money Guide is to always deal with a regulated bond broker and to do your research. If the returns on a product look too good to be true in comparison to everything else on the street then they probably are.
Darren is a veteran of the financial markets with almost 36 years of experience under his belt. He has worked in trading, sales, analytical, and research roles, he has been a regular guest & commentator on financial television channels and publications. During his career, Darren has been fortunate to act for and advise major hedge funds and investment banks as well as HNWI. Darren analyses the markets using a blend of technical and fundamental analysis