Investors are still being exposed to adverts for mini-bonds on Google.
Reports over the weekend from both The Sunday Times and The Daily Telegraph cited a number of examples of mini-bonds at the top of an online search for certain terms, such as “high-return investments” or “top Isa rates”.
This goes against the spirit of new rules that came into effect at the start of the year, which banned the marketing of mini-bonds to retail investors for one year. During this period the regulator will consider making the ban permanent.
Ahead of the ban, in an interview with Reuters in late November, Andrew Bailey, chief executive of the Financial Conduct Authority, who will take on the role of governor of the Bank of England, called on internet firms including Google to help it stop mini-bonds being promoted to retail investors.
At the time he said: “We want to see more from Google; they have a responsibility given the reach and power of their tool. We have got to reach a point where we understand that where a test is passed and we can demonstrate a site is harmful, they are prepared to take it down.
“Otherwise we are constantly playing a game of whack-a-mole and I don’t think that is the right way to go about it.”
Following The Sunday Times’ findings Google said it is working with the Financial Conduct Authority to develop a method that will enable the City Watchdog to report unauthorised business. It told the paper it was “working with regulators . . . on further clarity in this area in order to protect consumers”
Mini-bonds have come under increased scrutiny, following several high-profile scandals. One of the most prominent cases has been London Capital & Finance, which left almost 12,000 pensioners and first-time investors out of pocket following its collapse
Over the past seven years or so, a swathe of companies has appealed directly to income-starved savers in the form of mini-bonds. Juicy yields, some of which have been in excess of 7%, have been on the table.
These bonds are targeted at small investors, and they can be bought from as little as £1,000. The far larger corporate bond market is dominated by institutions and comes with much higher minimum investment requirements.
But important distinctions need to be made here: retail bonds and mini-bonds are two different types of bonds. Retail bonds are tradable on the secondary market (via the London Stock Exchange's Order Book for Retail Bonds, Orb), whereas mini-bonds must be held to maturity, even if the firm falls into difficulty.
In addition, mini-bonds typically raise smaller amounts and the issuers are, on the whole, less secure businesses. Moreover, unlike retail bonds, there is no requirement on issuers of mini-bonds to produce financial statements.