Despite banning the sale of risky, illiquid securities such as mini-bonds and loan notes to retail investors in 2021, the U.K.’s Financial Conduct Authority (FCA) is warning investors that these illicit products are still being touted on social media and other online venues.
The FCA said it’s still seeing retail investors losing money on speculative investments that were formally banned more than five years ago.
Among other things, firms are trying to get around the prohibition using loopholes — such as getting investors to self-certify that they’re sophisticated or high-net-worth investors, or using trust structures to evade the FCA’s jurisdiction — the regulator reported.
Additionally, unregulated firms are also advertising the products and referring investors to the companies actually selling the high-risk investments — often taking large referral commissions.
The FCA noted that scammers are also trying to add legitimacy to their promotions by listing on an offshore exchange, or involving regulated firms in the administration of the schemes.
“Big, fixed returns are a warning sign, not a guarantee. Loan notes, mini-bonds and other speculative illiquid securities are high-risk investments and are not suitable for most people,” said Lucy Castledine, director of consumer investments at the FCA, in a release.
“Ordinary retail investors should only invest through regulated firms because if they invest through an unauthorized firm, they may have little or no protection if things go wrong. We are working hard to prevent harm, but consumers should still stop and check before investing,” she added.
In addition to warning investors, the FCA called on regulated firms and other professionals — including lawyers, accountants and auditors — that are involved in distributing or funding high-risk investments to report illicit distributions to retail investors.
And, in a report published earlier this year, the regulator called on the government to review “legislative exemptions that can mean certain high-risk investments can be promoted outside FCA regulation.”