The United Kingdom’s Financial Conduct Authority, or FCA, has officially enacted a ban on mass marketing to retail customers of speculative mini-bonds. This ban has come into effect on the 1st of January of 2020 and will continue for 12 months as the regulator consults over permanent legislation.
Murky Waters Of Mini-Bonds
The term “mini-bond” is a tad ambiguous, covering a wide array of different investments. The ban in question applies to the more opaque and complex style of arrangements. These arrangements are made that the funds raised are, in turn, lent to a third party. Said third party then invests this in other companies or otherwise use it to develop properties. Of these so-called mini-bonds, there are various exceptions listed to this ban as well. Things like companies raising funds for their own activities, excluding the usage above, or companies funding a single investment of property in the UK are exempted.
The FCA has suffered limited powers over issuers of these speculative mini-bonds. The problem is further complicated by these issuers not even being authorized most of the time. However, the regulator can take action should an authorized firm communicate, approve, sell, or directly advise this product. Another critical issue with this activity is the rise of incidences where either scams or frauds are incorporated, with no attempt made to meet the financial promotion rules of the country. A slightly amusing fact is that the marketing ban doesn’t apply to this fraudulent group of scammers: The promotion is already illegal; thus, these frauds have bigger things to be accused of.
Over 200 Cases Of Seemingly Improper Advertisement
This blanket ban on mini-bond marketing was introduced after the FCA conducted an extensive work program to handle mini-bonds and its risks to investors properly. These investor risks quickly translate to threats of real harm that can be done to a consumer over the year of investigation.
The FCA had investigated over 80 individual cases of a regulated activity that had the potential of being done without the proper authorization from the regulator. Furthermore, the FCA assessed more than 200 cases of financial promotion that did not seem to adhere to the FCA rules of advertisement.
Mandated Inclusions In Advertisement
The real implication of this advertisement ban means that firms are only capable of advertising speculative unlisted mini-bonds to select investors. These investors have been identified by said firms to have a high or sophisticated net worth. The marketing material that the firms approved or produced afterward must also include warnings of its risks, further disclosing costs or third-party payments that will be deducted from the raised investor funds.