Regulation of non-transferable debt securities (mini-bonds): a consultation
The government is consulting on proposals to bring the issuance of non-transferable debt securities (‘mini-bonds’) within the scope of financial services regulation.
London Capital & Finance (LCF) which issued non-transferable debt securities (NTDS), entered administration in January 2019, impacting 11,000 investors who had invested more than £230m. Issuing NTDS is currently an unregulated activity and investors therefore benefitted from few regulatory protections when investing in the products.
Following the failure of LCF, the Treasury announced it would review the regulatory arrangements in place for the issuance of NTDS to retail investors. An independent investigation into the Financial Conduct Authority’s supervision of LCF carried out by Dame Elizabeth Gloster which was published in December 2020 also made a specific recommendation that the government should consider bringing the issuance of NTDS into regulation.
This consultation is the culmination of the Treasury’s review and explains that the activity carried out by LCF, and other similar NTDS issuers, had the characteristics of a financial services activity, and sets out proposals for how the issuance of these securities could become regulated. The preparation of the consultation has been supported by a detailed study of the NTDS market, carried out by London Economics and YouGov.