* Ban applies for year ahead of permanent rules
* No CoCo has been written down yet in Britain
* EU watchdog has also warned on risks from CoCos
(Adds more detail)
By Huw Jones
LONDON, Aug 5 Britain's banks are banned from
offering risky and complex hybrid debt known as contingent
convertible bonds or CoCos to the mass market from October, the
country's Financial Conduct Authority (FCA) said on Tuesday.
Faced with pressure from regulators to bolster their capital
cushions, banks are set to issue CoCo bonds in ever larger
amounts to shield taxpayers from having to rescue failing
lenders like in the 2007-09 financial crisis.
The bonds can be written off or converted into equity if
capital at the bank which issued them falls below a
pre-determined "trigger" level.
Some $70 billion of CoCos were issued between 2009 and 2013
with a fifth from UK banks, the FCA said. Total issuance is set
to roughly double over the next five years or so.
So far no CoCo has been wiped out in Britain but the
watchdog wants to anticipate any problems.
"In a low interest rate environment many investors might be
tempted by CoCos offering high headline returns," Christopher
Woolard, FCA director of policy said in a statement.
"However, they are complex and can be highly risky, and the
FCA has used its new powers to ensure that CoCos are not
inappropriately made available to the mass retail market while
still allowing access for experienced investors."
The FCA was launched last year in a bid to protect consumers
better after a string of mis-selling scandals and the watchdog
has powers to ban or vary how a product is sold.
Distribution will be limited to professional, institutional
and sophisticated or wealthy retail investors ahead of a public
consultation on permanent rules later this year.
The restriction on sales and marketing will apply to retail
clients anywhere in the European Union.
At present there is little experience of how CoCos operate
in practice and the UK market is at an early stage of
development, the watchdog said.
"Despite significant market appetite for these instruments,
there is growing concern that even professional investors may
struggle to evaluate and price CoCos properly," the FCA said.
It said that up to 75 percent of sales in some countries
have been to retail investors, with the loss per customer in
some cases over 80 percent of their initial investment.
The FCA's intervention follows a warning to retail investors
last week about CoCos from the European Union's banking
(Editing by Matt Scuffham and Mark Potter)