Peer-to-peer lending and crowdfunding platforms have raised concerns over some mini-bond providers operating in the unregulated space following the temporary mini-bond ban.
Since the ban was introduced last November, industry stakeholders have noted that more mini-bond providers are moving into the unregulated space where there is less protection for investors.
“I do worry about investors who invest in unregulated products and also worry about investors in certain regulated products,” said Daniel Rajkumar, managing director of Rebuildingsociety.
“With regulated companies, investors should have more information about what they’re getting into, but with unregulated firms there are no repercussions about misinformation and fewer consequences for firms acting poorly.
“There are a few P2P mini-bond providers moving to P2P. Propio is a really good example of a mini-provider coming to us, recognising the value of regulation and compliance. We’re delighted to help them join the sector.”
Mike Bristow, chief executive of CrowdProperty, has seen some providers apply to the Financial Conduct Authority (FCA) to become regulated under 36H, but others simply operate as unregulated entities.
“I think there are enormous issues around that on multiple levels,” he said. “It affects existing customers and new customers.
“Some have built consumer brands and people can sign up and go to them having built an awareness under the regulatory cover.
“And if a firm is regulated and their existing customers benefit from the regulatory cover and then they suddenly become unregulated and they no longer benefit from that cover, there are enormous issues.
“I think anyone choosing to go down this route is treading on thin ice on multiple levels.
“I’m sure the FCA thought of this, they have a very good perspective on intended and unintended perspectives on policies.”
Meanwhile, Bruce Davis, co-founder and managing director of Abundance Investment and director of the UK Crowdfunding Association, which has consulted on the mini-bond ban with the FCA, shared Bristow’s concerns.
“We have seen companies using unregulated methods to issue the bonds and that’s exactly what we warned would happen and it’s a very bad outcome from the ban,” he said.
“There is no protection for these investors. The ban only applies to regulated firms, which from what we’re aware of, weren’t causing problems.
“It doesn’t stop someone following the unregulated route and therefore some companies are following that approach. The FCA must’ve known it would happen and would say it’s outside of their perimeter and I disagree.”