City grandees call on watchdog to close investment loophole

Pressure is mounting on the City watchdog to close a loophole that allows regulated firms to sell risky unregulated investments. Telegraph Money last week highlighted the perverse situation whereby regulated firms and advisers can sell unregulated schemes to consumers. Many offer levels of risk that are unreasonably high for the ordinary investor.

This newspaper has called on the Financial Conduct Authority (FCA), the City watchdog, to close this gap in the rules. Politicians and advisers have echoed our campaign to better protect consumers. Lord Myners, who was a City minister under Gordon Brown, said: “It’s a simple solution that would address most of the issues around the delineation between authorised firms and authorised investments.

“The FCA must require all authorised firms or individuals to disclose in big letters when a scheme they offer is not regulated or protected by the Financial Services Compensation Scheme. I find it disappointing that the FCA has not moved more rapidly to address this.”

This loophole has already affected thousands of people, including customers of London Capital & Finance, who invested £236m in its unregulated “mini-bonds” after the firm boasted of FCA accreditation. In reality the bonds were not approved by the regulator, only the company’s promotional activity.

Financial advisers have also come under the spotlight after pension savers were recommended high-risk unregulated investments. Ian

Cornwall of Pimfa, a trade body for financial advisers, said the current rules meant unscrupulous firms could sell “weird and wonderful” schemes to trusting consumers.

“These investments are not suitable for run-of-the-mill clients – you can’t argue with that,” he said.

“We must make sure consumers don’t end up investing in a forest in Cape Verde, or something else that is not suitable for the average person.”

Kerry Nelson of Nexus, a financial adviser, also called for this “massive loophole” to be closed urgently.

“These dreadful unregulated investments should not be available to the general public,” she warned.

“I’ve never seen a positive outcome because customers don’t have the appetite for such risk. We need to prevent people from losing money.”

Consumers are throwing cash away by investing in assets such as forests in Cape Verde, according to experts