FCA looks to ban marketing of speculative ‘illiquid’ securities

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