FCA uses emergency powers to clamp down on LCF-style minibond adverts

City watchdog the Financial Conduct Authority today banned companies from mass marketing their high-risk investments known as “mini-bonds” to the public.

Thousands of unsophisticated investors bought London Capital & Finance’s high-interest mini-bonds after responding to advertisements on Google and Facebook. It subsequently went bust, leaving them facing the loss of much of their money.

The FCA is now deploying emergency powers to stop such ads in a bid to block a likely flood of promotions in the ISA season. From 1 January, firms will only be allowed to promote mini-bonds to investors who have previously been vetted as either sophisticated or “high net worth”, earning over £100,000 or with £250,000 of assets not including their homes. The ban will last a year while a permanent solution is sought.

However, it only covers firms whose promotions are regulated. Many of the risky investments being marketed to the public are not, and so would not be captured by the new ruling. The FCA also warned the curbs will not prevent ads for scams, which are illegal anyway.

The regulator thinks there are 15-20 firms regularly issuing regulated promotions of mini-bonds.

MJS-Colarb, which collapsed this year putting elderly savers’ money at risk, and Blackmore, currently late paying dividends amid delays to its property developments, would not have been covered.

FCA chief executive Andrew Bailey, under fire for doing too little to curb the mini-bonds scandal, said: “We had to act as we approach another ISA season. I am not going to be complacent about this.”

However, he admitted he could only act where the FCA was permitted. The Treasury is reviewing how mini-bonds are regulated, but its work has been delayed by Brexit.

The FCA repeated its criticisms of Google, which it accuses of being too slow to take down rogue mini-bond adverts.

Bailey wants “financial harm” added to proposed legislation to force internet firms to take down harmful content covering gang violence and terrorism.

Which? welcomed the FCA move, saying: “Savers have been put at risk of losing their life savings by misleading adverts for high-risk investments for too long, so this strong action from the regulator banning the mass marketing of these products is positive.”