The City watchdog’s proposal to make its mini-bond marketing ban permanent has been blasted as “unnecessarily damaging” to legitimate firms in the sector.
The Financial Conduct Authority (FCA) has banned the marketing of mini-bonds to retail investors for the whole of 2020 due to concerns that everyday investors did not understand the risks involved, nor could afford the potential financial losses.
It came after the collapse of mini-bond provider London Capital & Finance (LC&F), in which the regulator found investors were misled into believing investments were ISA-eligible.
The FCA is now considering making the ban permanent and extending the scope of the ban to include listed bonds with similar features to speculative illiquid securities and which are not regularly traded.
The UK Crowdfunding Association (UKCFA), which represents a number of equity and loan-based crowdfunding platforms, has said that the new proposals “will have little or no effect” in stopping the marketing of unregulated mini-bonds to retail investors.
“Instead we believe that the proposed permanent ban is unnecessarily damaging to legitimate regulated crowdfunding firms with proven track records, who were some of the first to whistleblow to the FCA about the practices of these unregulated firms as they emerged over the last few years including meeting directly with the chief executive of the FCA in summer 2019,” the UKCFA directors said in an emailed statement.
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“We also believe that this intervention distracts from the urgent task to tackle this very real problem which has caused painful losses for investors and will instead limit much needed competition and innovation by regulated companies working within the rules who have repeatedly asked the FCA to enforce those rules more swiftly and effectively against evidence of bad practice or treating customers unfairly.
“We also await the findings of the delayed review of the FCA’s actions in respect of the collapse of the most notorious of these unregulated firms, LC&F.”
LC&F collapsed last year, leaving 11,600 investors at risk of losing a combined total of £240m.
A government probe into its failure has been postponed for three months.
Dame Elizabeth Gloster, the former appeals court judge who is leading the inquiry, has advised the FCA chairman Charles Randell that she will not be complete her investigation by 10 July as planned. A new deadline of 30 September has been suggested.
Dame Gloster said that the inquiry has been held up by long waits for documents from the City regulator, as well as the challenges presented by the Covid-19 pandemic, which has made it harder to interview people.