Watchdog ban on high-risk mini-bonds

The City watchdog has banned marketing of risky ‘mini-bonds’ to ordinary investors in the wake of London Capital & Finance (LCF) scandal.

The move means that potentially bogus schemes can no longer bombard savers with advertisements promising bumper returns.

The high-profile collapse of LCF took £237m from investors before its collapse last year. Most savers who put cash in the scheme face losing all their money.

Blackmore Bond, a similar scheme that invested in property projects up and down the country, also went bust earlier this year after taking £47m from customers.

Many of those stung had been looking for alternatives to traditional savings accounts, which have offered rock-bottom returns over the past decade, in a bid to increase their retirement nest eggs.

But the Financial Conduct Authority (FCA) has become by Matt Oliver increasingly concerned about the highest-risk, ‘speculative’ mini-bonds. Because the bonds are not covered by the Financial Services Compensation Scheme safety net, most investors face losing all their money if the schemes collapse.

LCF went bust last year after raking in £237m from nearly 12,000 customers who were offered returns of 8pc.

Investors were told their cash would be invested in a wide range of start-ups but administrators later revealed it had instead been funnelled into just 12 firms, in transactions described as ‘highly suspicious’. The Mail also revealed that bogus mini-bonds were being peddled by suspected fraudsters online and are advertised widely on Google.

The ban means that only ‘sophisticated or high-net-worth’ investors can be targeted by companies like Blackmore and LCF.

Companies selling bonds will also have to include a specific risk warning in their marketing, and reveal any payments to third parties that are deducted from the amount raised from investors. LCF was paying its sales agent, Surge Financial, 25pc commission on the funds it raised for the scheme. Administrators have said it earned a total of £60m.

The Serious Fraud Office (SFO) made four arrests in connection with the collapse of the high- risk lender on March 18, 2019. Three months later, Paul Careless ( pictured), the chief executive of Surge Financial, was also arrested and questioned. hargreaves Lansdown, the most popular investment platform used by small British shareholders, welcomed the ban. Sarah Coles, personal finance analyst at hL, said: ‘It was vital for the FCA to step in.’