Unregulated loan notes and mini-bonds: don't risk your savings on promises of high returns

We banned the marketing of speculative mini-bonds[1] and loan notes to ordinary retail investors from 1 January 2021.

We did this because these are complicated investments, not suitable for most people. The ban means these high-risk investments[2] should not usually be advertised widely to the public.

But some unregulated firms may still try to sell them by using legal exemptions.  

You should be on alert if you’re offered these types of investments by someone not regulated by us. They may ask you to tick a box saying you are a sophisticated, experienced or high-net-worth investor before you can invest. Most people don’t meet these criteria.

Be very careful before ticking any boxes, as it could mean you lose important protections if things go wrong. You’re unlikely to be able to take complaints to the Financial Ombudsman Service or make a claim through the Financial Services Compensation Scheme.

Mini-bonds and loan notes

A loan note or mini-bond[1] usually involves lending money to a company for a set period in return for interest or buying such a loan that someone else has made. That means you have to feel comfortable analysing the company’s ability to pay it back. If the company fails, you may get back much less than you invested, or nothing at all.

What we are seeing

All investing carries some risk. That risk is what leads to investment returns and is no bad thing. But if you’re putting money into products that sit outside normal savings and investments, especially through a firm that is not regulated, the risks can be much higher. You may also be more exposed to fraud or scams.

Be especially careful if an investment promises very high returns, makes unusual guarantees or if something sounds too good to be true. Ask yourself how the underlying company can pay back that amount and, if they can, why they are funding it this way.  

There shouldn’t normally need to be unregulated introducers in investments; if there are, make sure you understand their roles and incentives.  

People are seeing adverts for loan notes and mini-bonds in everyday places, including websites, online, social media and through people who pass their details to investment firms.

Examples we have seen include:

• An online advert saying potential investors can earn a return significantly above the amount a bank would pay you for your savings.
• A website that claims an investment is asset-backed, for example in property, but does not clearly explain what the assets are worth or who else may have a claim on them.
• An investment proposal with a reference to an 'FCA-authorised security trustee' being involved. Don’t assume it is safe because acting as a security trustee is not a regulated activity in its own right. The firm may have a limited role in the deal. It does not mean you are protected if things go wrong. Scammers may use this wording to make an investment look more trustworthy.
• A firm or individual contacting people they don’t know offering to introduce them to an investment opportunity based in the UK or overseas.
• A listing on an overseas exchange which makes a bond look legitimate but is traded infrequently or not at all on the exchange.  
• A firm asking potential investors to tick a box saying they are a sophisticated investor before you can invest.
• People being told there is a deadline to invest, told to act quickly to get the promised interest rate.
• The promotions focus entirely on what investors could earn but say little about how they could lose money.
• Promotions that aren’t clear on whether investors can get their money back early, or what happens if the company fails.

How your money may be used

In some of the cases we have seen, only part of your money is used for the investment itself. A high proportion of it may go towards paying an introducer, marketing, staffing and other costs.  

This means the investment may need to perform very well just for you to get back the money you put in, regardless of any promised return.  

These features are not common in mainstream investments and are potential hallmarks of scams.  

Promises of high returns can be a warning sign. Before investing, check the costs, ask where your money will go, decide whether the return sounds realistic, and remember that higher returns usually mean higher risk.

What you should do before investing

• Most people investing their own money should use an FCA-authorised firm. That should be the party you are speaking to, and you are sending money to. If you’re not sure, get independent financial advice, especially if no authorised firm is involved.
• Use the Firm Checker[3] to see if a firm has permission to provide the services you are looking for and to help avoid scams.
• There are ways to protect yourself from being scammed. Find out how to spot the warning signs[4] of investment, pension and other financial scams.
• Never tick a box or sign anything saying you are a sophisticated or high-net worth investor unless it is true and you fully understand what it means. Scammers may tell you this is needed to access an investment, but it could mean you lose important protections.  
• Check comparison sites to see what rates FCA-regulated providers are offering. If you are promised much higher fixed returns, be careful. Higher returns usually mean higher risk.
• Do not invest because of pressure, a deadline or based solely on a social media recommendation.
• Ask the firm whether anyone else will be paid commission or fees, and how much. Check that you understand what you are getting for this money. Check how much of your money will actually be invested. If you do not get a clear answer, treat it as a warning sign.

If you are worried

If you are worried about a firm or promotion, report it to us[5]. If you have already invested and think your money may be at risk, contact your bank straight away and report it to Report Fraud[6].

What we do to reduce harm

We seek to disrupt potential scams by unregulated firms. We look across a wide range of websites, promotions, firms and reports to spot where consumers may be at risk. We also work with police and law enforcement in the UK and overseas to help disrupt harm.

So far this year, we have issued more than 1,200 warnings.

But scams can be complex, fast-moving and hard to stop, especially when run from overseas or designed to avoid our rules. If you invest through an unauthorised firm, you are unlikely to get your money back. If you are unsure, do not invest.

Protecting people from harm takes everyone working together, including banks, payment providers, regulators, government and law enforcement.

But you can help protect yourself too by staying alert, checking who you’re dealing with and taking time to think before investing.