Laura Suter, personal finance analyst at investment platform AJ Bell, comments on the FCA’s decision to ban mini-bond advertising:
“You would have to have been living under a rock last ISA season to have missed the flood of advertising from mini-bond companies, touting these unregulated products to the mass market and promising unbelievably high returns while claiming to be ‘low risk’ products. Many likened their returns to cash or cash-plus, meaning that people who have grown weary of their cash savings earning next to nothing were lured into investing in the hope of getting a return on their money.
“But the fact is that most of these products aren’t suitable for the average person on the street. They aren’t regulated, they aren’t covered by the compensation scheme and they are often higher risk than advertised.
“It’s interesting that the initial ban is just for a year, and being brought in in time to cover next year’s ISA season, but it seems unlikely that the regulator will relax the ban after the first 12 months. However, we could see a last flurry of advertising before 2019 is out and the ban comes in.
“Investors should also be aware that the regulator has said that there is evidence of a growing incidence of promotions which are scams and the marketing ban will not help investors here because the scams are illegal. Investors will therefore still need to be on their guard for scams and be wary of anything that looks too good to be true.
“The move also means that the Innovative Finance ISA’s days must surely be numbered, with the FCA acknowledging that the ISA status of some of these mini-bonds has enabled them to be touted to a wider market. The regulator and Government are already looking at the suitability of the IFISA as part of the review into London Capital & Finance, and we would urge them to scrap the IFISA for the safety of savers.”
