The FCA’s new regime for high-risk securities, such as mini-bonds and loan notes, has come into force.
The Public Offers and Admissions to Trading regime sets new rules and standards about when an offer of securities to the public can be made.
The types of securities within the scope of the new rules include transferable securities (such as shares) as well as non-transferable debt securities (such as mini-bonds).
The new regime include the FCA gaining some powers over unauthorised firms offering high-risk securities, but it still has limited ability to deal with unauthorised firms.
The new rules are part of the regulator’s crackdown on the selling of high-risk investments to retail investors.
The FCA continues to warn consumers against higher risk investments.
In its latest release the FCA said: “High-risk investments are unsuitable for all but the most experienced investors. These investors fully understand the risks, as well as the opportunities, of high-risk investments and have the finances to deal with losses.”
The regulator has been dealing with the fallout from, and criticising its handling of, recent high profile mini-bond firm failures.
The notorious collapse of London Capital & Finance has seen the regulator heavily criticised over how it handled the firm. The mini-bond provider failed in 2019 leaving 11,000 investors with combined losses of over £237m. The company had advertised the mini-bonds as ISA compatible when this was not the case.
Its handling of the £46m collapse of Blackmore Bonds has also drawn widespread criticism. About 2,000 investors lost about £46m when Blackmore Bond collapsed amid allegations of suspect sales tactics and inappropriate payments. The FCA however ruled out paying compensation or launching a criminal investigation into the collapse.
In May the FCA publicly apologised to clients of two failed mini-bond firms for the way it dealt with their complaints about the firms and will pay compensation.
The regulator upheld complaints about its handling of mini-bond providers Basset & Gold plc and Basset & Gold Ltd, both based in the City of London.
The watchdog admitted after a lengthy investigation that there were “failures” in the way it dealt with the firms although it has rejected calls for substantial redress.
Last year an additional two mini bond firms were shut down after a £3m fraud against investors. Some clients lost part of their life savings or pensions cash when the rogue firms, run by a brother and sister, were ordered to be wound up by the High Court.
The Insolvency Service took legal action to wind up the firms - Satchi Holdings and Hartreel - which claimed to offer a 9% return on investment bonds, ‘blatantly misleading’ investors.
The offer was similar to the strategy used by failed rogue mini-bond firm London Capital & Finance (LCF) which claimed to offer 'safe' bond investments.