FCA warns "Beware of Risky Loan Notes"

The City rocked by more mini bond insolvency

British savers are still financing unregulated loan note schemes and pouring millions in, according to the Financial Conduct Authority. The FCA has warned investors to beware of loan note schemes, otherwise referred to as mini bonds secured by unregulated advisors.

The financial market saw the High Court rule Lon­don & Cap­ital Fin­ance as a Ponzi scheme in 2024, which The Scam Hound mentioned earlier this week. Last year Goodwin Capital went into insolvency they had raised £160 million in loan notes, and The 79th Group lost £250 million and according to the Mail on Sunday.

What are loan notes?

A loan note is a formal, legally binding written promise where the borrower (issuer) agreed to repay a specific sum to the lender (noteholder) at a future date with interest. They can advert­ise high returns with little or unconventional guar­an­tees that can result in huge losses.

How are investors not protected?

Often these schemes find legal loopholes by requesting investors to self-certify as "sophisticated" or "high net worth," this bypasses strict regulatory oversight. This results in a lack of financial protection: If an unregulated scheme fails, investors cannot access the Financial Ombudsman Service or claim compensation through the Financial Services Compensation Scheme (FSCS) according to the FCA.

Prior to the loan note accessing the project for investment large chunks of savings from investors’ are siphoned off by introducers and middlemen as commission.

It has now been estimated that tens of thousands of UK investors have been scammed many pensioners. With loan notes and mini-bonds still being advertised on social media, online adverts or web­sites pro­mot­ing high fixed returns.

How to protect your investments

Always search the FCA Register to verify if a firm is authorised before handing over money.

If an investment promises fast, high, or guaranteed returns think red flag.

Say no to cold calls, social media ads, or unexpected emails offering get-rich-quick schemes.

This article is general fraud-prevention information, not financial advice.