Greater FCA powers hoped to negate need for mini-bond ban

The UK Crowdfunding Association (UKCFA) is hopeful that extending the Financial Conduct Authority’s (FCA) financial promotion powers will negate the need for a permanent ban on marketing mini-bonds to retail investors.

The regulator implemented a temporary intervention this year, amid concerns about how speculative illiquid securities (SIS) are marketed.

But the trade body has warned that plans to make this ban permanent could harm crowdfunding platforms as the regulator has said it could include firms offering other types of debt securities.

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The FCA’s aim was to stop a repeat of the collapse of mini-bond providers such as London Capital & Finance (LCF), where investors were misled into believing investments were ISA-eligible. But critics have said the FCA’s proposals would not stop this happening again as mini-bond providers, unlike crowdfunding platforms, are not authorised.

However, the Treasury has now proposed that the FCA should be able to approve financial promotions from unauthorised firms. It has proposed establishing a regulatory ‘gateway’ so any firm wishing to approve the financial promotions of unauthorised firms would first need to obtain the consent of the FCA.

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“This is a common sense move to clean up the mini-bond sector and will hopefully see the withdrawal of a number of firms providing that service to companies such as LCF,” Bruce Davis, founder of crowd bonds platform Abundance and a director of the UKCFA, said.

“We believe that these changes effectively negate the need for the imposition of the temporary intervention and will be considering our response to the consultation on the permanent changes in due course following consultation with our members.”

Read more: Treasury proposes giving FCA more powers over financial promotions