FCA has announced that there is a prohibition on unregulated mini bonds to retail traders for a ban that will last a year long. The UK’s financial regulatory watchdog has been working overtime to prohibit the marketing of unregulated “mini bonds”, which has resulted to over 11,600 traders exposed to financial risk and on the verge of losing their life savings.
Why Did the FCA Ban Marketing of Unregulated Mini Bonds?
The FCA has described the issue as “the nuclear option”, following the ban of any form of promotions for the financial products, starting from January 2020, and continuing for a full year. This is because there has been a high amount of scams and fraudulent activities that followed the marketing of high-risk mini bonds. Mini-bonds are loans that are granted to small businesses or business-owners, which are repaid with high interest rates. This is because of the borrowers are naturally high-risk.
What Went Wrong?
Although unregulated mini bonds are not commonly deal with by the UK’s financial regulatory agency, their marketing and promotion by validated companies are supervised by the FCA. The financial regulatory agency has overseen more than two hundred similar situations where authorized financial marketing is not aligned with the regulations. There is also speculation that another 80 instances could be downright frauds, where the validated companies are going to be brought forward.
“The FCA have taken on board the lessons of the LCF scandal and felt it time to take what, in regulatory terms, is the nuclear option,” stated Matt Hopkins, an audit director at BDO, a consulting firm. “It is very rare for the FCA to put a retail investor ban on a whole product class, particularly without going through a lengthy consultation period.” This has only occurred twice in FCA history, and the reason that this hasty decision was made was because many consumers lost faith in the FCA and its ability to protect their assets.
The London Capital and Finance scandal left many retail traders shaken up and fearful of their savings. In response to the scandal, the FCA has requested that it was launching a consumer awareness campaign and urged Internet companies, such as Google, to take a more active role in removing and red-flagging fraudulent online scams. The FCA has expressed its frustration of how the Internet companies are slow in taking down fraudulent activities online., and they suggested that Google take down any advertisements of financial campaigns if the FCA provides adequate evidence.