Financial promotions relating to a speculative illiquid security will be restricted to sophisticated or high-net worth retail investors, the FCA has announced.

Where such products continue to be marketed to these types of investors, the promotions will have to clearly state the risks to consumers of losing all their investment and fully disclose all costs and third-party fees.

Background

Due to the Authority’s significant concerns with the widespread marketing (particularly online) of these products, despite the level of risk and difficulty for retail investors to understand, there will be a temporary product intervention without consultation.

Promotions reviewed by the FCA often demonstrate poor quality, particularly regarding explanation of risks and fees involved, including misleading information that may suggest these products are more secure or are less risky than is the case.

Types of Investment & Who this affects

The FCA defines speculative illiquid securities as unlisted bonds and preference shares where the issuer uses the funds raised to lend to a third party, invest in other companies, or purchase or develop property.

The measures will not apply to companies using unlisted securities to buy or construct property used for their own commercial or industrial purpose. Nor will they apply to investment vehicles that only invest in a single UK-based property.

Those affected by this intervention:

• Issuers of speculative illiquid securities
• Authorised firms that approve or communicate financial promotions relating to speculative illiquid securities
• Firms offer services in relation to these products, such as:
• Investment advice
• Arranging deals in investments
• Dealing in investments on behalf of clients
• Companies receiving funding from issuers of speculative illiquid securities
• Law firms and other professional service providers to issuers or firms

Next steps

Firms are expected to understand and comply with these new rules by 1 January 2020.

The FCA will consult on permanent rules in the first half of 2020, when it is expected that any proposals submitted under the temporary intervention, be made permanent.