The City watchdog has permanently banned marketing of mini-bonds after thousands of savers lost hundreds of millions of pounds in a string of scandals.
Marketing of the speculative investments, which allow unregulated companies to raise money directly from ordinary investors was temporarily banned in January, almost a year after after mini-bond firm London Capital & Finance collapsed with £237m of savers’ money.
That ban will now become permanent, the Financial Conduct Authority announced on Thursday, but campaigners warned holes in the law and weak enforcement by regulators meant consumers were still at high risk of being targeted by fraudsters.
Mark Taber said that scammers had simply changed their marketing methods to get around the ban, a fact acknowledged in March by then-FCA chief executive Andrew Bailey.
The FCA has consistently said that it is not responsible for regulating mini-bond companies, despite the fact that they sell investments to consumers.
“I do not understand how the FCA can say that it is not its job to stop this. It’s like the police saying, ‘it’s not our job to patrol an area that’s known to be rife with crime’.”
He described laws to protect people from investment scams, and the FCA’s enforcement of them, as “a joke”.
There is no legal definition of what a mini-bond is in the UK. Most companies that have offered them, including London Capital & Finance, borrow money from ordinary savers, promising them a fixed return well above the rate available on most standard saving products.
The mini-bond firm is then largely free to do what it wants with the money. Many have lent investors’ cash to hird party companies (which sometimes has the same directors), bought other risky investments such as race horses or wine, or funded property construction.
A number of companies that raised money in this way have collapsed with millions of pounds of savers’ money unaccounted for.
The FCA claims that mini-bonds are not within its remit, while criminal investigations for fraud are rare and prosecutions even rarer.
As a result, investors generally have no protection if things go wrong, and fraudsters can operate with little fear that they will be punished.
“The law needs to change. There’s no doubt about that,” said Mr Taber. “But why has the FCA not been calling for it to change? And it doesn’t even use the powers it’s already got.”
He advocates bringing in an offence similar to wire fraud in the US, among other measures.
While the FCA does not authorise and regulate mini-bond companies it is responsible for ensuring that marketing of financial products to consumers is up to standard.
Mr Taber has provided the FCA with details of 300 adverts placed on Google for scam investments. Only a fraction of these have been taken down, often weeks or months after the FCA was notified, in which time scammers have gathered contact details for potential victims who they can then call and sell to.