FCA mini-bond probe puts 14,000 in­vestors on ice

The Sunday Telegraph - Money & Business - - Money - Sam Barker

Around 14,000 mini-bond own­ers are in limbo af­ter a probe by the Fi­nan­cial Con­duct Author­ity (FCA), the City reg­u­la­tor, froze the as­sets of Lon­don Cap­i­tal & Fi­nance (LCF), a sav­ings and in­vest­ments firm.

LCF had of­fered a mini-bond and fixed-rate Isa pay­ing 8pc re­turns.

How­ever, the FCA launched an in­ves­ti­ga­tion this week and told the firm to pause all its reg­u­lated ac­tiv­ity.

On Dec 13, the watch­dog had told LCF to pull all its mar­ket­ing ma­te­rial for its fixed-rate Isa and mini-bond. It said the mar­ket­ing was “mis­lead­ing”.

LCF said that no bor­rower has ever de­faulted on one of its loans and it hoped to get back to busi­ness soon.

Mini-bonds of­fer at­trac­tive re­turns but are risky. Un­like re­tail bonds, mini-bonds are un­listed, so their own­ers can­not sell them be­fore their ma­tu­rity date.

In­vestors also have no pro­tec­tion un­der the Fi­nan­cial Ser­vices Com­pen­sa­tion Scheme, which pays out when savers lose their money, so there is no guar­an­tee of get­ting any money back if any­thing goes wrong.

Mini-bonds can fail dra­mat­i­cally. In 2015, in­vestors lost £7m when Se­cured En­ergy Bonds failed. Prov­i­dence Bonds col­lapsed the fol­low­ing year.

Mini-bond providers do not have to pub­lish full prospec­tuses on their deals and their mar­ket­ing ma­te­rial of­ten lacks detail.

Ma­teusz Malek, of in­vest­ment firm Kil­lik & Co, said: “It shows that maybe now the reg­u­la­tor is look­ing into some of these providers and tight­en­ing the screw a lit­tle bit.”

There is lit­tle cer­tainty on what hap­pens next for LCF bond­hold­ers. The FCA gave no prom­ises that in­vestors would get their money back. It said it will pub­lish an up­date “when it is ap­pro­pri­ate”.

LCF said it would write to its bond­hold­ers soon and would pub­lish up­dates on its web­site “when­ever there is a sig­nif­i­cant devel­op­ment”.

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