The Financial Conduct Authority is “concerned” people are being encouraged to invest in high-risk schemes offered by unregulated firms.
It said many of the products offered do not need to be authorised by the FCA as they rely on exemptions in the law meaning there are fewer protections for investors.
The regulator said some of the particularly risky products seen are unlisted loan notes or mini-bonds, often used to finance property developments.
They involves investors lending money, often via a third-party firm, to fund the developments.
The FCA said: “While all investments come with risk, for these products the risk can be particularly high and they are generally for experienced investors who feel confident in assessing the quality of the company’s business and the likelihood of being repaid.
“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 FCA warned such investors are unlikely to be able to take complaints to the Financial Ombudsman Service or claim through the Financial Services Compensation Scheme.
‘Sophisticated investors’
The FCA said exemptions in the law means that certain high-risk investments can be marketed directly to those considered wealthy or if they’re an experienced investor, known as a ‘sophisticated investor’, under strict criteria.
In the UK, potential investors can self-certify that they are sophisticated.
The regulator urged people to think carefully if asked to confirm they are a sophisticated investor and whether they genuinely have experience of similar high-risk investments.
“Taking higher investment risks can be right for some people, depending on your circumstances,” said the FCA.
“But you need to make sure you’re aware of the risks you’re taking. And you should also be wary of putting all your eggs in one basket.
“Instead, spread your investments across different products and areas so you’re less dependent on any one pick to perform well for you.
“By diversifying your investments like this, you can smooth out the effects of one performing badly, while still reaping benefits when others do well.”
tara.o’connor@ft.com
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