The Financial Conduct Authority's CEO, Andrew Bailey, told S&P Global Market Intelligence that the regulator's move to clamp down on the promotion of mini-bonds is a sign of its growing assertiveness.

The Financial Conduct Authority, or FCA, said Nov. 26 that it was intervening to ban the mass-marketing of unregulated mini-bonds to retail investors, other than high-net-worth individuals and sophisticated investors. It also said it is investigating more than 200 cases in which financial promotions in relation to mini-bonds appear not to have complied with its rules. Mini-bonds fund loans to small companies and can be listed or unlisted, but the FCA's ruling will apply only to unlisted mini-bonds and retail investors.

Mini-bonds were at the heart of the £236 million collapse of London Capital & Finance PLC that leaves 11,600 investors at risk of losing their savings after the company went into administration. Mini-bonds are not usually covered by the Financial Services Compensation Scheme, so if things go wrong consumers have little hope of redress. An independent investigation into the FCA's handling of London Capital & Finance, urged by the Treasury, is underway after it was heavily criticized for being too slow to respond to warning signs.

The FCA will introduce the yearlong marketing ban on Jan. 1, 2020, until it decides on a more permanent arrangement.

A complex issue

The FCA regulated London Capital & Finance's marketing but not the investments themselves. Bailey, however, said the ban on mass-marketing mini-bonds was a sign of the regulator being more assertive and that it was no longer enough for it to claim issues like this were outside its remit.

"Some of the most complex issues we deal with are things on the regulatory perimeters. Mini-bonds are not within our regulatory perimeter, but the promotion of them can be," he told S&P Global Market Intelligence.

Companies such as London Capital & Finance can operate in a legal gray area between regulated and unregulated activity at the edge of the FCA's remit. Earlier this year, the government rejected a recommendation from the Treasury Select Committee to give the FCA broader powers to oversee products outside its remit, the so-called regulatory perimeter. How much regulators focus on issues at the edge of their remit rather than those solely within it has been the subject of long debate, said Bailey.

"Some have said the perimeter is there for a reason and we should put more of our emphasis on things inside the perimeter rather than things outside it. But the problem is not so easy, and how we regulate this area and how we explain what we do to consumers is important," he said.

Changing attitude

Bailey said that for consumers who had lost out, the notion that a regulator would not act against an errant company under its supervision because the activities that caused harm are not specifically regulated, is no longer sufficient.

"Our experience shows that this view is no longer tenable. So, yes, we have changed our attitude to how we approach this kind of thing. We have to be more robust at that point. I think there is much more to come," he said, while emphasizing that the regulator could only act within the limits approved by the government and Parliament.

Earlier this year, the FCA published the first of an annual perimeter report looking at areas where perimeter issues are most likely to cause harm to consumers and markets.

The FCA also said in relation to mini-bonds that it is in talks with Google and other internet service providers to persuade them to promptly take down websites that appear to be in breach of the rules. Bailey said there were signs of progress here, "but we are not there yet."

BoE top job

Bailey is in the running to replace Mark Carney as governor of the Bank of England. He refused to comment on the appointment process or whether he would be happy to remain at the FCA if he were passed over for the job.

"No matter what happens, though, I will say the FCA is a fascinating place to be," he said.