We are aware that mini-bonds issued by Secured Energy Bonds plc (SEB) were sold to UK investors; this was without advice from financial advisers. SEB failed in 2015 and investors largely lost their investments. We explain the current options for investors.
Issuing mini-bonds is not a regulated activity, so firms issuing mini-bonds do not need to be authorised by the FCA; we did not regulate SEB.
Mini-bonds
A mini-bond is an unlisted debt security, typically issued by small businesses to raise funds.
Mini-bonds can be attractive to investors because of the interest rates on offer. However, prospective investors need to understand the associated risks. Mini-bonds are usually illiquid as they are not transferable, unlike listed retail bonds, which they are often compared to. They can also be high risk, as the failure rate of small businesses can be high. Additionally, as with the issue of other non-transferable corporate bonds, there is no Financial Services Compensation Scheme (FSCS) protection if the issuer fails. This, together with the fact that SEB was not authorised, means that the FSCS does not cover claims against SEB.
The FSCS may only compensate protected types of claim against authorised firms. If the defaulting firm generated protected claims, e.g. from arranging deals in investments, the FSCS could compensate eligible claimants, provided all relevant criteria are met.
Independent Portfolio Managers Ltd (IPML) – in liquidation
An authorised firm must generally approve the financial promotions in respect of investments, including mini bonds.
As an authorised firm, IPML has FSCS protection for claims in connection with regulated activities carried on for investors. So the FSCS may be able to compensate investors if, for example, they have valid claims in relation to misleading financial promotions which were approved by IPML in connection with arranging deals in SEB’s mini bonds. This will be for the FSCS to determine.
On 21 June 2018, the FCA cancelled IPML’s Part 4A permissions[1] for failure to pay an amount owed to it.
On 11 December 2018, Kristina J Kicks and Nicholas S Wood of Grant Thornton UK LLP were appointed as liquidators to IPML. These appointments were made by order of the court.
What this means for investors
IPML are in liquidation so consumers should contact the FSCS, who declared IPML in default on 3 December 2018[2].
The FSCS will determine whether claimants are entitled to receive compensation.