Following last month’s decision by the Financial Conduct Authority (FCA) to permanently extend its temporary mass marketing ban on mini bonds, the regulator has taken the first tentative steps towards regulating the risky fixed income investments. Certain cryptocurrency assets could also be regulated for the first time.
The move was indicated yesterday by the launch of two separate consultation by the City minister John Glen. Both are designed to broaden the scope of the FCA’s mandate of oversight of financial promotions. The first step towards the change in approach is justified by a perceived failure for enough being done to protect small private investors.
Under current rules, an unauthorised firm may promote risky investment products such as mini bonds and certain digital assets if the promotion itself is approved by a regulated third party. However, there has been growing concern the approach has not been strict enough after recent scandals including the collapse of London Capital & Finance. The firm had sold £236 million of mini bonds to around 12,000 investors.
The consultations will examine the proposal that in future authorised firms would have to secure direct permission from the FCA before marketing the categories of financial promotions being looked at. These include crypto assets such as digital currencies or ‘tokens’, as well as mini bonds. Before being approved, such financial promotions will have to demonstrate they meet minimum standards of “fairness, clarity and accuracy”.
Recent research conducted by the FCA indicates that the number of British investors holding crypto assets doubled between 2019 and this year. However, existing only in digital format and with little practical use, crypto asset prices are renowned for their wild volatility. There have also been numerous cases of fraudulent promotions.
Former FCA chief executive Andrew Bailey has highlighted the difficulty facing the FCA of needing to given additional powers to crack down on the mis-selling of risky investments within the constraints of finite resources. Recently appointed the new governor of the Bank of England, Mr Bailey has continued to support the extension of the FCA’s remit to encompass additional categories of financial promotion.
However, he has highlighted the fact that the regulator already oversees around 60,000 organisations. The extent of that domain of oversight makes it, believes Mr Bailey, impossible for the regulator to be expected to “man-mark”, particular firms.
Both consultations will run until October 25th, after which their findings and recommendations will be presented.