FCA Bans Mass Marketing of Risky Mini-Bonds


The UK’s FCA announced today that it would ban the mass marketing of speculative mini-bonds to retail clients. The ban is introduced without consultation as the FCA uses its product intervention powers.

26 November, 2019 | AtoZ Markets – In anticipation of the next season of Individual Savings Accounts (ISAs), the FCA restricts without consultation, using its product intervention powers. The restriction will come into effect on January 1, 2020. And it will last 12 months while the FCA consults on the establishment of permanent rules.

FCA Bans Marketing of Mini-Bonds to Retail Clients

The term “mini-bond” refers to a series of investments. The ban will apply to more complex and opaque arrangements. In there, the funds raised are used to lend to a third party, invest in other businesses, or buy or develop properties. There are several exemptions. Those include for publicly traded mini-bonds, companies raising funds for their activities, or for financing a single real estate investment in the UK.

The FCA has limited powers over generally unauthorized issuers of speculative mini-bonds. But it may act when an authorized firm approves or communicates a financial promotion, or directly advises or sells these products. Alongside this activity, there is an increasing incidence of fraudulent or fraudulent promotions. That does not involve any attempt to comply with financial promotion rules. The marketing ban does not apply to these frauds and scams because they are, in any case, illegal.

Andrew Bailey, Chief Executive Officer of FCA, said, “We continue to be concerned about opportunities to promote mini-bonds to retail investors. They do not have the skill to assess and handle the risks involved. It is quite common for mini-bonds to have ISA status, or to claim it even if they do not have the status.”

“Given this risk, we have decided to supplement our existing substantial actions with another measure. That will involve the prohibition of mass marketing and marketing of speculative mini-bonds to retail consumers. We believe this will enable us to improve consumer protection under our regulatory principles and the FCA’s mission.”

Read More: ESMA Chairman Concerns for Forex Liquidity Risk

FCA Released Guidelines on Business Requirements

The FCA’s ban will mean that unlisted speculative mini-bonds can only be promoted to investors. Marketing material produced or approved by an authorized firm. It will also need to include a specific risk warning and disclose any costs or payments to third parties.

Companies that approve financial promotions need to ensure that these promotions comply with FCA rules. FCA also today released guidelines on business requirements when it comes to approving financial promotions of unauthorized persons. FCA’s opinion is that many promotions still do not meet existing requirements. And companies that approve financial promotions from unauthorized persons may not take adequate steps. The steps are to ensure that they comply with our rules before to approve them.

FCA also intends to launch a communication campaign to increase consumer awareness of risks. And it wants to inform them of what they should consider before investing in high-risk investments.

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