The Press and Journal (Inverness, Highlands, and Islands)

FCA looks to ban mar­ket­ing of spec­u­la­tive ‘illiq­uid’ se­cu­ri­ties

- BY KEITH FIND­LAY AND AU­GUST GRAHAM Business · Finance · Investing · Personal Finance · United Kingdom · London · Financial Conduct Authority · London Capital · Blackmore

Pen­sion­ers de­prived of de­cent sav­ings rates for more than a decade will no longer be preyed on by un­scrupu­lous in­vest­ment schemes promis­ing sky­high re­turns, the UK fi­nan­cial watch­dog has said.

The Fi­nan­cial Con­duct Au­thor­ity (FCA) an­nounced plans to ban the mar­ket­ing of spec­u­la­tive “illiq­uid” se­cu­ri­ties, in­clud­ing prod­ucts known as mini­bonds, to re­tail in­vestors who have lost hun­dreds of mil­lions of pounds in a se­ries of high-pro­file fail­ures.

For years am­a­teur in­vestors, es­pe­cially those sav­ing for re­tire­ment, have sought in­vest­ment op­por­tu­ni­ties that net them a bet­ter re­turn than low­in­ter­est prod­ucts.

But thou­sands have been stung, los­ing most of their money in risky schemes.

One of the most high­pro­file cases is Lon­don Cap­i­tal and Fi­nance (LCF), which col­lapsed in Jan­uary last year with £237 mil­lion of in­vestors’ cash trapped in­side.

The com­pany had raised mil­lions from around 11,000 in­vestors, promis­ing re­turns of up to 8%.

But a large por­tion of what LCF raised was used to pay its mar­ket­ing agency, Surge Fi­nan­cial, leav­ing the com­pany with even thin­ner mar­gins to pay in­vestors from.

Th­ese bonds are not cov­ered by the Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, so most bond­hold­ers will be left with lit­tle or noth­ing to show for in­vest­ments they had hoped would see them through re­tire­ment.

Ear­lier this year Black­more Bond – a sim­i­lar scheme that in­vested in prop­erty projects around the UK – went bust, trap­ping the sav­ings of thou­sands more in­vestors.

The FCA tem­po­rar­ily banned the mar­ket­ing of mini-bonds, ef­fec­tive from Jan­uary 1 2020, late last year.

It has now pro­posed a small num­ber of “changes and clar­i­fi­ca­tions”, which in­clude bring­ing listed bonds with sim­i­lar fea­tures that are not reg­u­larly traded within the scope of a per­ma­nent ban.

Shel­don Mills, in­terim strat­egy and com­pe­ti­tion ex­ec­u­tive di­rec­tor, FCA, said: “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 first 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 have pro­posed ex­tend­ing the scope of the ban.”

The new ban will al­low only “so­phis­ti­cated or high net worth” in­vestors to be tar­geted by com­pa­nies like Black­more and LCF.

Firms sell­ing bonds will also have to in­clude a spe­cific risk warn­ing in their mar­ket­ing and dis­close any pay­ments to third par­ties that are de­ducted from the amount raised from in­vestors.

The FCA said the ban would ap­ply to “com­plex and opaque ar­range­ments”, where in­vest­ments are used to fund a third party or con­struc­tion projects, or buy other in­vest­ments.

Sellers will be ex­empt if they are sell­ing listed bonds, which are easy to sell, rais­ing cash for their own busi­ness or fi­nanc­ing a sin­gle UK prop­erty in­vest­ment.

“We aim to prevent peo­ple in­vest­ing in high­risk prod­ucts”

 ??  ?? REA­SON: The aim is to prevent peo­ple in­vest­ing in com­plex, high-risk prod­ucts of­ten dif­fi­cult to un­der­stand
REA­SON: The aim is to prevent peo­ple in­vest­ing in com­plex, high-risk prod­ucts of­ten dif­fi­cult to un­der­stand

Newspapers in English

Newspapers from UK