The UK’s top financial watchdog has permanently banned adverts for so-called “mini-bond” investments, following a string of scandals that left ordinary investors will loses of over £1bn ($1.2bn) last year alone.
The Financial Conduct Authority (FCA) said on Thursday it would extend a temporary ad ban introduced in January, permanently banning all adverts for unlisted and illiquid bonds.
“We know that investing in these types of products can lead to unexpected and significant losses for investors,” Sheldon Mills, interim executive director of strategy and competition at the FCA, said in a statement.
“We have already taken a wide range of action in order to protect consumers and 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.”
‘Mini-bonds’ is a loose term that refers to unregulated investments. Often they promise high-interest to investors but are high-risk. Scams also proliferate in the sector.
Bond Review, a blog which tracks the sector, estimates investors lost at least £1bn investing in these products in 2019. High profile scandals include London Capital & Finance, which collapsed last year after raising over £236m ($287m) from ordinary savers. The Serious Fraud Office is investigating.
The FCA said the advertising ban would “apply to the most complex and opaque arrangements where the funds raised are used to lend to a third party, or to buy or acquire investments, or to buy or fund the construction of property.”
The ban is also being extended to cover some listed but illiquid bonds.
“Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors,” Mills said. “We are very concerned about this and so we have proposed extending the scope of the ban.”
Questions will likely be raised about the effectiveness of the FCA’s action. Mini-bond ads have continued to appear on Google since the temporary ban came into force in January. Financial campaigner Mark Taber told Yahoo Finance UK this week he had flagged 280 different scam ads to the regulator since the turn of the year.
“The FCA does nothing other than issue warnings which it shares with Google asking them to remove the ad,” Taber said. “This means the scammers simply re-advertise using a different domain name.
“They should be tracing and taking action to stop and prosecute the main scammers who keep re-advertising.”
The FCA said it has “limited powers over the issuers of speculative mini-bonds who are usually unauthorised”.
Earlier this week FCA chair Charles Randell said the regulator found itself in the “absurd” position of having to take out ads itself to warn about the dangers of mini-bond investments.
“We need a framework to stop social media platforms and search engines from promoting unsuitable investments, including scams, to ordinary retail consumers,” Randell said.