The UK Financial Conduct Authority (FCA) announced Thursday that its temporary ban on mass marketing of speculative mini bonds will be permanent starting January 1, 2021.
Temporary ban since early 2021
The regulator had already imposed a temporary ban on the mass marketing of the illiquid investments since last January. Starting in January 2021, the regulations will become permanent. The new rules will be similar to the temporary rules but with a few small changes.
The temporary ban was imposed without industry or public consultation. However, the FCA opened a consultation in June and decided to make the prohibition permanent. The regulator says that retail investors don’t understand the risks associated with these financial instruments and they cannot afford the potential financial losses.
Protecting retail investors from losses
Interim Executive Director of FCA, Sheldon Mills, commented on the ban and said,
“We’ve today confirmed our proposals to make the speculative mini-bond ban permanent and extend its scope. These products are high risk and are often designed to be hard to understand. Consumers should always be wary of any investment promising high returns while downplaying risks.”
The financial watchdog has also advised online companies like Google to be stricter with their policies because most financial products are promoted to retail customers using these platforms.
Minimizing risk for retail investors was a part of the regulator’s plan in 2021/21. It is actively working to flag suspicious investment firms and eyeing the prohibition of the retail sale of crypto derivatives. European peers of the FCA are also becoming increasingly strict with regulations and reducing the risk of retail investors. The Dutch financial regulator recently imposed restrictions on sales of turbo certificates to retail investors. Turbo certificates are skin to contracts-for-difference (CFDs) which have gained notoriety among regulators in recent months.