INNOVATIVE Finance ISA (IFISA) providers have been urged to seek regulatory advice amid warnings of ‘unintended consequences’ of the Financial Conduct Authority’s (FCA) mini-bonds marketing ban.
Consultancy and audit firm BDO warned that other “high risk product providers” such as those offering IFISAs should ensure they are operating properly.
The FCA has said mass marketing of mini-bonds will be banned in the new year.
It follows the collapse of mini-bond provider London Capital & Finance (LCF) after the FCA found investors were misled into believing investments were ISA-eligible.
Matt Hopkins, director at BDO, said the City watchdog had little choice, due to the way mini-bonds have been offered on social media.
“The FCA has taken on board the lessons of the LCF scandal and felt it time to take what, in regulatory terms, is the nuclear option,” Hopkins said.
“An outright ban makes it clear to retail investors that they should steer clear of these products completely.
“Other higher risk product providers that market to retail investors like IFISAs should take the opportunity, before the ISA season starts, to take proper regulatory advice on what they are doing.
“The FCA is not turning its back on innovation but recognises the risk of new and innovative products to the consumer and to the reputation of the UK regulatory environment.
“Cautious but robust policy initiatives and protective measures like this will be seen as supportive to the UK’s position as the global fintech leader, not detrimental.”
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Organisations such as the UK Crowdfunding Association (UKCFA) have previously called for the FCA to take action on the LCF collapse but said it will look out for unintended consequences of the ban.
“We were disappointed that the FCA had not taken swifter and more decisive action to intervene in the case of LCF, so we are pleased that action is now being taken,” Bruce Davis, director of the UKCFA and also joint managing director of P2P crowd bonds platform Abundance.
“However, we still strongly hold the view that LCF was not a problem of a lack of rules but a need to more effectively enforce existing rules.
“Therefore we will examine the details of these temporary rules for unintended consequences – particularly if the definition of ‘speculative investments’ could stop legitimate, authorised investment crowdfunding platforms from offering investments that are structured to be entirely appropriate for retail investors.”