The Financial Conduct Authority is “concerned” people are being encouraged to invest in high-risk schemes offered by unregulated firms without understanding the risk involved.
The watchdog said many of the firms offering these products do not need to be authorised by the FCA as they rely on exemptions in the law that take them out of its scope.
It means certain high-risk investments can be marketed directly to those considered wealthy or if they’re experienced investor, known as a “sophisticated investor” under strict criteria. However, in the UK potential investors can self-certify that they are sophisticated.
The regulator said some of the particularly risky products it has seen are unlisted loan notes or mini-bonds. These come in several forms and are often used to finance property development. This involves an investor lending money, often via a third-party firm, to fund property developments.
While all investments come with risk, the FCA said the risk of these products can be particularly high and are generally for experienced investors who feel confident in assessing the quality of the company’s business and the likelihood of being repaid.
The FCA said: “People selling high risk, unregulated investments typically draw people in with enticing websites, marketing campaigns and social media finfluencer promotions. If someone introduces you to the investment, they may take a fee for doing so. This would generally be taken from the amount you’ve invested.
“The opportunities we have seen offered typically come with a fixed, high rate of return, which is a promised annual rate of interest paid to investors.
“However, behind the glossy promotional and eye-catching brochures can sit high risk, opaque or even non-existent enterprises.”
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