FCA warns investors of risks in unregulated mini-bonds

The Financial Conduct Authority (FCA) has issued warnings to consumers regarding the risks of investing in mini-bonds and loan notes issued by unregulated companies. Despite a 2021 ban on marketing these speculative, illiquid securities to retail investors, the regulator continues to observe individuals losing money through such high-risk investments.

These products typically involve lending money to a company for a set period in exchange for interest. Because they are often unregulated, investors may lack recourse through the Financial Services Compensation Scheme or the Financial Ombudsman Service if a company fails. The FCA noted that the recent failure of Woodville Consultants, a litigation funder, serves as a recent example of these risks.

Warning signs for potential scams or high-risk offers include promises of large, fixed returns, pressure to act quickly, and claims of being ‘asset-backed’ without clear evidence. The regulator also cautioned that some firms may encourage individuals to falsely certify themselves as wealthy or experienced investors to bypass marketing restrictions.