The UK Financial Conduct Authority has issued a warning for investors regarding “risky” investments such as Mini-bonds and Loan Notes. The regulator cautions that these securities typically set a term for a return of the principal, along with interest, but if the firm goes bust, you can lose all of your money.
These products were permanently banned from retail participation in 2021. Previously, some securities crowdfunding platforms offered mini-bonds. Chilango infamously issued a “burrito bond” on an investment crowdfunding platform, raising over £5 million, but eventually went bust. It is unclear whether any funds, or how much of investors’ money, was recovered.
Unlike listed corporate bonds, mini-bonds typically have limited liquidity, less regulation and transparency, and are issued by smaller private firms. These securities are also generally not covered by the Financial Services Compensation Scheme (FSCS) if the company fails.
Reports indicate that at least 25 mini-bond issuers collapsed between 2018 and 2021.
Still, the FCA states that retail investors may see promotions for these investments.
Lucy Castledine, director of consumer investments at the FCA, said, “Big, fixed returns are a warning sign, not a guarantee,” and urged investors to invest only through regulated platforms.
