‘Mini-bonds’ have become an increasingly popular way for money to be invested, both for companies receiving the funds and the investors, who receive a fixed rate of interest over a short period of time, with the initial investment being returned to the investor at the end of the bond’s life. The term mini-bond is used to describe forms of raising debt-finance but are often camouflaged to investors as merely ISA’s or bonds. The return on investors’ money is dependent on the success of the business invested in. Retail investors should be aware that there is always the risk of the business failing and losing their money.
However, changes are being made by the FCA to the way in which mini-bonds are marketed to potential investors. For companies that are not regulated by FCA, yet offer mini-bond incentives, the promotion of mini-bonds must be approved by an FCA-regulated firm. It is this approval, and the advertising of mini-bonds that is being temporarily restricted.
This comes after a sequence of scandals which the FCA have been criticised for, for its failure to prevent. Most notably, the collapse of London Capital & Finance (LCF) which saw nearly 12,000 people lose a total of £236 million. Like many others, the scheme was marketed as a fixed-rate ISA, misleading potential investors to believe there was more credibility to the scheme.
As a result of other similar failures, from January 1st, 2020, the FCA will restrict the advertising of mini-bonds to retail investors for a year, initially. However, the ban will only apply to specific arrangements where investments are used to invest in third party companies or to fund a property. For companies using the funds for their own activities, or to fund a single UK property investment, they may be permitted to market to potential investors. Further exemptions exist, including mini-bonds which have a denomination of £100,000 or more and those which are not considered by the FCA to be illiquid.
Our partner company, Alfred Henry Corporate Finance Limited have listed a significant number of bonds on stock markets across Europe and can provide advice on the restrictions and the listing of bonds.
In recent months, they have listed a £100 million bond programme on Euronext Dublin, Dozens Savings Plc Bond on NEX and Dozens Savings Plc Bond on NEX.