The Financial Conduct Authority (FCA) is prompting clients of a defunct mini-bond provider to contact the Financial Services Compensation Scheme (FSCS) to see whether they are eligible for a refund.
This is despite mini-bonds, which are unlisted debt securities usually distributed by small business to raise funds, not being regulated by the FCA.
They can be attractive to investors because of the interest rates on offer. However, prospective investors need to understand the associated risks.
Mini-bonds are usually illiquid as, unlike listed retail bonds, they are not transferable, the FCA said.
Small window for investors
But some investors have been handed a potential lifeline after it emerged that Secured Energy Bonds arranged deals with Independent Portfolio Managers (IPM), a company that was authorised by the UK financial watchdog.
This means that if the misleading financial promotions were approved by IPM in relation to SEB’s mini-bonds, investors have a chance at getting compensation from the FSCS.
But, whether or not investors can get compensation lies in the hands of the lifeboat scheme.
The matter is complicated by the fact the FCA cancelled IPM’s permissions in June 2018 for failing to pay an unspecified amount due to the regulator.
It was then put into liquidation in December 2018.
The mini-bond saga
The product has been a thorn in the regulator’s side for a few months now, following the collapse of London Capital & Finance in March 2019.
The firm issued “misleading” mini-bonds and Isas on a non-advised basis, promising 8% returns to clients.
The FCA is now facing an investigation led by the HM Treasury after it failed to respond adequately to complaints about London Capital & Finance that it received years before the firm collapsed.
