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Confirmation of the ban on the marketing of speculative illiquid securities

Updated: May 22, 2021

It will be no great surprise that the FCA has confirmed that the existing temporary ban on speculative illiquid securities will be made permanent from 1 January 2021. Last week the FCA published Policy Statement 20-15, which discusses the feedback they received to the consultation paper from earlier this year and importantly confirms the final rules to permanently ban the mass-marketing of speculative illiquid securities (SIS) to retail investors.

What will change from the temporary rules?

Interestingly, a widening of scope sees certain listed securities caught by the ban, specifically when they are not regularly traded. The FCA reiterates their point from the consultation paper that “we consider that relevant listed bonds pose similar (and in some cases, possibly greater) risks to unlisted SISs and have seen evidence of this”. For this reason, these types of listed bonds are brought in scope.

Other changes are more clarifications than additions or removals to the rules. These include a clarification to the use of SPV’s and a ‘single company holding vehicle’ to allow for a ‘look-through’ exposure to an underlying company carrying on a commercial or industrial business. The scope of this is still however deliberately narrow and the vehicle must also meet the other requirements of the exemptions.

Helpfully there is more guidance on general commercial and industrial purpose, as this had been cause for a fair amount of confusion and variation in interpretation. There is also a tightening of the definition of a property holding vehicle, to specify that this vehicle does not include the development of the property itself. This is not good news for vehicles that include both the development and the subsequent rental of the property.

What next?

These rules form part of the FCA’s work to reduce consumer harm by preventing retail customers from investing in unsuitable products. It is part of a wider review of consumer markets and it seems likely that we will see other changes follow. The Call for Input on the Consumer Investments Market closed yesterday and we await the feedback with interest.


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