Understanding FCA's ban on speculative mini-bonds

  • Identify the FCA's concerns about certain types of mini-bonds
  • Identify FCA's exemptions to permit promotion of speculative mini-bonds
  • Describe the implications following collapse of mini-bond issuer LCF
Understanding FCA's ban on speculative mini-bonds

The FCA will ban the promotion of speculative mini-bonds to retail investors for a year from 1 January 2020. 

The move is a welcome one, however, it comes too late to protect the 11,600 people who suffered devastating losses in the collapse of mini-bond issuer London Capital & Finance (LCF) earlier this year.

Announcing the ban, the Financial Conduct Authority’s (FCA) chief executive Andrew Bailey said, “We remain concerned at the scope for promotion of mini-bonds to retail investors who do not have the experience to assess and manage the risks involved. 

“This risk is heightened by the arrival of the Isa season at the end of the tax year, since it is quite common for mini-bonds to have Isa status, or to claim such even though they do not have the status.” 

The FCA’s move comes amid the ongoing fallout of the LCF scandal. 

LCF had promoted some £236m mini-bonds to small investors on the basis of false claims that they had Isa status and would be invested in a broad range of companies.

Complex parallel regulatory, statutory and criminal investigations are underway following LCF’s collapse earlier this year. 

FCA ban

The FCA’s own handling of the matter will be examined closely by the government’s inquiry, led by High Court judge, Dame Elizabeth Gloster. 

A number of MPs have even called for Mr Bailey to resign, after it emerged that the FCA was warned about LCF three years ago.  

We can only hope that these investigations will ultimately lead to the establishment of an effective regulatory regime for mini-bond issuers. 

Of course, the term “mini-bonds” is used by promoters to refer to a wide range of investments, some of which are far riskier than others. 

The FCA’s ban is in respect of “speculative mini-bonds” which it calls “more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties.” 

There are exemptions to permit the promotion of speculative mini-bonds in respect of less risky investments.

The FCA has also announced a communications campaign to help better inform consumers about the risks of certain investments. 

It has also warned of an increase in investment scams. 

The FCA has singled out Google for its alleged slowness in taking down promotional websites which are breaching FCA regulations. 

The new guidance will be set out in the FCA Handbook at COBS 4.14. 


The amending instrument, the Conduct of Business (Speculative Illiquid Securities) Instrument 2019 has been published online. 

What are colloquially referred to as “speculative mini bonds” are referred to as “speculative illiquid investments” within the instrument. 

The instrument is issued under the provisions of the Financial Services and Markets Act, 2000.

Speculative illiquid investments are defined in COBS 4.14.17R. These are defined as a “debenture or preference share” which “has a denomination or minimum investment of £100,000 or less” and which is issued for: