Ahead of the upcoming ISA season, the FCA is introducing the restriction without consultation, using its product intervention powers. The restriction will come into force on the 1 January 2020 and last for 12 months while the FCA consults on making permanent rules.
The term mini-bond refers to a range of investments. The ban announced today will apply to more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties. There are various exemptions including for listed mini-bonds, companies which raise funds for their own activities (other than the ones above) or to fund a single UK property investment.
The FCA has limited powers over the, usually unauthorised, issuers of speculative mini-bonds but can take action when an authorised firm approves or communicates a financial promotion, or directly advises on or sells, these products. Alongside this activity, there is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event.
Over the last year, the FCA has undertaken an extensive programme of work to tackle the risks for investors from mini-bonds, reflecting the real risk of consumer harm. This includes:
- Investigating more than 80 cases of regulated activities potentially being carried out without having the right FCA authorisation;
- Assessing over 200 cases of financial promotions that appeared not to have complied with the FCA rules;
- Seeking to persuade the internet service providers, particularly Google, to take more action, for instance to take down websites promptly where they are likely to involve a breach of law or regulations;
- Contact with the Department of Culture, Media and Sport to urge inclusion of financial harm in the proposed legislation on online harms;
- Developing tools for data analysis, for instance introducing web scraping to assist in the identification of mini-bond promotions.
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