The Financial Conduct Authority has issued a fresh warning to investors about the dangers of putting money into high-risk unregulated investments.
The FCA highlighted unlisted loan notes and mini-bonds, often used to finance property developments, as particularly risky.
These products involve lending money, frequently through third parties, to fund projects, and are generally only appropriate for experienced investors able to assess the likelihood of being repaid.
Promotions often come via slick websites, marketing campaigns or social media influencers, offering high fixed rates of return.
But the regulator warned that behind glossy brochures can sit “high risk, opaque or even non-existent enterprises.”
The regulator said many of the firms offering these products do not need to be authorised by the FCA, as they rely on legal exemptions that take them outside its remit.
This means investors have far fewer protections if things go wrong, including no access to the Financial Ombudsman Service or the Financial Services Compensation Scheme.
The FCA also raised concerns about the way investors are categorised. In the UK, individuals can self-certify as ‘sophisticated investors’ under certain criteria, allowing them to access high-risk investments that would not be deemed suitable for everyday retail investors.
The regulator urged consumers to think carefully before signing such declarations.
“Taking higher investment risks can be right for some people, depending on circumstances, but you need to make sure you’re aware of the risks you’re taking,” the FCA said.
It added that diversification is essential to avoid being overexposed to a single failed investment.
