June 18, 2020 / 7:05 AM / 18 days ago

Britain broadens ban on retail marketing of 'mini-bonds'

LONDON, June 18 (Reuters) - Britain’s finance industry watchdog has made an interim ban on marketing speculative securities like mini-bonds to retail investors permanent and more wide-ranging, the watchdog said on Thursday.

The Financial Conduct Authority came under pressure to act on mini-bonds after investment firm London Capital & Finance went into administration in early 2019, leaving 11,600 investors with losses of up to 237 million pounds ($297.34 million) on investments in mini-bonds that raised cash for small companies.

LCF and the marketing of the bonds were regulated but not the mini-bonds themselves. The FCA introduced the temporary ban without public consultation in January.

“Since we introduced the marketing ban we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors,” said Sheldon Mills, the FCA’s interim executive director of strategy and competition.

“We are very concerned about this and so we have proposed extending the scope of the ban.”

Listed bonds with similar features to speculative illiquid securities and which are not regularly traded will now be included.

The ban will apply to the most complex and opaque arrangements where the funds raised are used to lend to a third party, or to buy or acquire investments, or to buy or fund the construction of property, the FCA said.

An independent report into the FCA’s handling of LCF is due at the end of September.

Most of the holders of mini-bonds sold by LCF are not eligible for compensation from the Financial Services Compensation Scheme, and they are taking the body to court in a bid to change this.

$1 = 0.7971 pounds Reporting by Huw Jones. Editing by Jane Merriman

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