Consumers warned to beware of risky mini-bonds and loan notes

The FCA is warning consumers about the risks of investing in loan notes and mini-bonds issued by unregulated companies, after continuing to see people lose money in these high-risk investments. The recent failure of Woodville Consultants Ltd, a litigation funder that raised capital from retail investors through unregulated loan notes, shows the potential risk to investors.A loan note or mini-bond usually involves lending money to a company for a set period in return for interest. If that company fails, consumers could lose every penny.The FCA permanently banned the marketing of speculative illiquid securities, including mini-bonds and loan notes, to retail investors from 1 January 2021.But consumers may still come across adverts for loan notes and mini-bonds in everyday places, including social media, online adverts or websites promoting high fixed returns.The adverts can look simple and safe, but warning signs include pressure to act quickly, unclear explanations of how money could be lost, or claims that an investment is 'asset-backed' without clear evidence of what stands behind it. Examples of the practices the FCA sees include:Unregulated introducer firms passing consumers on