26 November 2019

FCA introduces restrictions on the distribution of mini-bonds

You may have seen the reports of the FCA’s restrictions on the marketing of so-called speculative mini-bonds to retail investors in the wake of the LCF scandal, in which bonds, mass-marketed to retail investors, were used to lend on to connected parties, or make highly speculative property investments, after the deduction of very substantial commissions to intermediaries.

The FCA’s paper can be found here. It is intended as a prelude to a more general tightening up of the financial promotions regime, which must be welcomed if it succeeds in driving unscrupulous or heedless operators from the market.

The specific restrictions in the paper are on mass marketing these mini-bonds to investors who have not been pre-qualified as either sophisticated or high-net worth. The FCA’s wording is that it is “restricting the marketing of speculative illiquid securities” to “ensure they can only be promoted to individual retail investors who have been pre-categorised as either sophisticated or high net worth, and where the product has been initially assessed as likely to be suitable for them”.

LGB’s Medium Term Note (MTN) programmes do not fall under the FCA’s definition of a mini-bond. We therefore do not envisage any change to the structure or marketing of our MTNs.   In any event, LGB has issued MTNs for growth companies since 2009 and has marketed these investments only to sophisticated and high net worth individuals in addition to institutional investors. 

The notes issued under LGB’s programmes are generally for up to three or four years’ duration, are secured on the company’s assets or receivables, and pay interest quarterly. The notes are listed on a recognised stock exchange and are transferrable. This is an important alternative source of funding for issuers and provides attractive yielding investments for institutions, wealth managers, family offices and qualified high net worth and sophisticated investors.

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