UK Conduct Regulator Consults on Permanent Ban for Marketing Speculative Illiquid Securities to Retail Investors06/18/2020The U.K. Financial Conduct Authority has launched a consultation on its proposals to make permanent its ban on the mass-marketing of speculative illiquid securities to retail investors. The FCA’s temporary product intervention measures, restricting the sale of speculative illiquid securities to retail investors other than sophisticated or high net worth investors, came into force on January 1, 2020 for a period of one year. The FCA’s consultation sets out the FCA’s plan for making the measures permanent and extending them to include listed bonds with similar features to speculative illiquid securities that are not regularly traded. Responses to the consultation should be submitted by October 1, 2020.
The FCA’s temporary product intervention measures restrict the mass-marketing of non-transferable bonds (which are sometimes colloquially termed "mini-bonds") and preference shares to retail investors and requires improved disclosure to be made to high net worth and sophisticated investors. The measures followed the high profile failure of bond issuer London Capital & Finance plc, which prompted an independent investigation into the circumstances surrounding LC&F's collapse and the FCA's supervision of the firm and the arresting of LC&F's directors in connection with an investigation by the Serious Fraud Office. The FCA’s proposals will make the temporary measures permanent, with the following limited changes:
- extending the scope of the ban to include listed bonds which are not regularly traded, including those admitted to trading on exchanges in the EEA;
- including a specific exemption for SPV structures that are used to make a single investment in a company to fund its commercial or industrial activity, which has been specifically chosen by the investor;
- certain drafting clarifications to the exemptions from the temporary measures; and
- clarifications to how promotions are restricted for speculative illiquid securities and non-mainstream pooled investments, to ensure investors are first assessed to determine whether they fall within an exemption from the ban (e.g. they are high net worth or sophisticated investors), then subject to a preliminary suitability assessment and finally they receive the financial promotion.
View the FCA's consultation on permanent bans on marketing speculative illiquid securities to retail investors.
View details of the FCA's temporary product intervention measures.
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