The collapse of London Capital & Finance (LCF) has put mini-bonds under the regulatory spotlight. Questions have been raised over the FCA’s oversight of this market and the Treasury has now weighed in to review how mini-bonds should be governed.
What exactly is a mini-bond?
There is no official definition of a mini-bond, but it is generally a bond built from illiquid debt securities and issued to retail investors. Offered with a relatively high interest rate over a set term, typically by smaller firms and start-ups, mini-bonds appeal to clients seeking a decent return on their investment. As mini-bonds generally cannot be traded and must be held until maturity, they are a high-risk option. If the bond issuer fails, then consumers can lose all of their capital.
Fallout from LCF’s demise
While the FCA waits for the findings of an independent inquiry into the collapse of LCF, it’s certain that some of the firm’s customers were considerably harmed. The FCA has taken action to clarify some of the risks in the mini-bond market and it is likely that the regulator will bolster the supervision of this sector. So, it’s important that firms take proactive action now. This applies to:
- Firms that have sold mini-bonds historically
- Firms that are currently active in this market