The Financial Conduct Authority (FCA) has confirmed that a permanent prohibition for the mass-marketing of speculative illiquid securities to retail investors will come into force from 1 January 2021.
The regulator started a consultation on the move in June 2020, following the introduction of a temporary ban in January 2020.
The temporary measure prohibited speculative mini-bonds from being marketed to retail investors, after the London Finance and Capital (LCF) scandal left over 11,600 bondholders short of £237m ($317m, €262m).
The January ban was put in place “following serious concerns that speculative mini-bonds were being promoted to retail investors who neither understood the risks involved, nor could afford the potential financial losses”, the FCA said.
The permanent ban will have extra features compared to the temporary one, including the addition of listed bonds “with similar features to other speculative illiquid securities” in its remit.
Sheldon Mills, interim executive director of strategy and competition at the FCA, said: “We’ve today confirmed our proposals to make the speculative mini-bond ban permanent and extend its scope. These products are high risk and are often designed to be hard to understand.
“Consumers should always be wary of any investment promising high returns while downplaying risks.”
Keith Richards, chief executive of the Personal Finance Society, said: “It is great to see the regulator take action to protect consumers.
“This permanent ban being extended makes sense as these products were being mass marketed when mini-bonds and similar listed securities aren’t suitable for most retail investors.
“Some of these mini-bonds and securities were being marketed as offering returns of 6.5% to 8% a year. We would all urge anyone being offered returns that seem too good to be true to be aware that they probably are and to seek financial advice as to whether an investment is suitable for them.”