FCA Flags Risks of Mini-Bonds and Loan Notes as Unregulated Investments Surge

The UK’s Financial Conduct Authority (FCA) has issued a fresh warning about the rising promotion of high-risk mini-bonds and unlisted loan notes, cautioning that many of these schemes are being marketed by unregulated firms without adequate investor protections.

High Yields, Hidden Risks

According to the regulator, glossy marketing campaigns often disguise fragile business models—or in some cases, companies that barely exist. These products typically promise fixed high returns and are commonly linked to property or development projects. However, investors have no access to the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS) if things go wrong.

The FCA highlighted that while some issuers exploit legal exemptions to promote their products, retail investors may be unaware of the dangers. “We are concerned people are being encouraged to invest in high-risk schemes offered by unregulated firms without appreciating the risks involved,” the watchdog said.

Lessons from Past Collapses

Mini-bond scandals have repeatedly hit UK savers in recent years.

• London Capital & Finance collapsed in 2019 after raising more than £230 million, later judged to have operated as a Ponzi scheme.
• Blackmore Bond failed in 2020 with losses of around £45 million, leaving thousands of retail investors out of pocket.
• Both cases exposed how promises of steady yields masked highly speculative projects, and sparked criticism over gaps in regulatory oversight.

In response, the FCA permanently banned the mass marketing of speculative mini-bonds to retail investors in 2020. Stricter rules introduced in 2022 limited which high-risk products can still be promoted under a “restricted mass market” label, requiring risk warnings, cooling-off periods, and caps on individual exposure.

How Firms Still Reach Investors

Despite tighter rules, some promoters continue to target retail money by leaning on self-certification exemptions. Investors can declare themselves as “high-net-worth” or “sophisticated,” sometimes with little verification. By doing so, they waive vital consumer protections.

The FCA also flagged the role of social media influencers, online ads, and cold calls in driving investor interest. Some introducers even take a commission directly from the investor’s capital, reducing the amount actually invested.

The lure remains the same: double-digit returns. But, as the regulator warned, “behind glossy brochures and slick promotions can sit high-risk, opaque, or even non-existent enterprises.”

FCA’s Advice to Investors

The FCA urged potential investors to:

1. Check the FCA Register to confirm if a firm is authorised.
2. Compare returns with mainstream savings and bond products.
3. Limit exposure to high-risk investments to no more than 10% of a total portfolio.
4. Diversify to avoid major losses tied to a single failed scheme.

Balancing Growth and Protection

The regulator’s intervention comes as authorities try to balance supporting capital formation with protecting savers from another round of mini-bond scandals. With past failures still in public memory, the FCA’s message is clear: if it sounds too good to be true, it usually is.

The FCA’s latest warning reinforces its long-standing message that investor protection must come first, even as regulators look for ways to channel capital into more productive uses. In fact, the watchdog recently unveiled a new initiative to mobilize retail savings, which you can read more about here: FCA Unveils ‘Targeted Support’ to Unlock £430 Billion of Dormant Cash.