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  • UK Conduct Regulator Announces 2020 Mini-Bond Product Intervention Measures
    11/26/2019
    The U.K. Financial Conduct Authority has announced that it will introduce temporary product intervention measures for 12 months from January 1, 2020 to December 31, 2020 to combat risks to consumers of the promotion of speculative mini-bonds. The measures follow the high profile failure of mini-bond issuer London Capital & Finance plc, which has prompted an investigation by the FCA into the circumstances surrounding LC&F's collapse and the FCA's supervision of the firm. HM Treasury is also conducting an ongoing investigation into the wider policy questions raised by LC&F's failure, focusing on a review of the regulatory regime governing non-transferable debt securities and an assessment of Innovative Finance ISA rules.

    The FCA's temporary product intervention measures, as set out in the Conduct of Business (Speculative Illiquid Securities) Instrument 2019, will be included as a new section in the FCA's Conduct of Business Sourcebook. The measures require that:
    • any promotions for speculative illiquid securities targeted at retail investors should be restricted to sophisticated or high net worth retail investors and firms should conduct a preliminary assessment of the suitability of a security for high net worth or self-certifying sophisticated investors;
    • any marketing material indicating benefits of speculative illiquid securities must include specific and prominent disclosures including a standardized risk warning, details of costs and charges associated with the security and the date on which the promotion was approved.

    Products categorized as "speculative illiquid securities" include unlisted bonds and preference shares where the issuer uses the funds raised to lend to a third party, invest in other companies or purchase or develop property. However, the rules will not apply to the use by companies of unlisted securities for purchasing or constructing property or their own commercial or industrial purpose, or to investment vehicles that only invest in a single U.K.-based property. The FCA intends to consult on permanent rules in the first half of 2020 and expects the consultation to include proposals for making the temporary rules, or a version of them, permanent.

    View the FCA's Temporary Product Intervention Measures.

    View the FCA's Conduct of Business (Speculative Illiquid Securities) Instrument 2019.

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