3 crucial differences between a crow-bond and a mini-bond

From 1 November 2016 investors will be able to hold debt securities within the wrapper, including debentures (essentially, asset-backed bonds) issued by crowdfunding companies, which some are calling “crowd bonds”, the FT’s Aime Williams says.

More in particular, a “crowd-bond” is a bond issued by a company or charity and sold to investors by a crowdfunding company — they are usually secured against the company’s assets.

The crowdfunder should be authorized by the Financial Conduct Authority to “arrange deals”, they should have done their homework on the company offering the bond, and they should give you — the investor — a test to make sure that you understand the risks attached to your investment. The bonds themselves will usually be issued by relatively small, unlisted companies.

However, “crowd-bond” is not a “mini-bond” as there are 3 crucial differences.

  1. For example, whereas mini-bonds are non-transferable, crowd-bonds can be sold to other investors while bearing in mind that the latter are still unlisted investments and there is no developed secondary market.
  2. Second, there is a quite important technical difference as mini-bonds tend to be issued by unregulated companies which are only allowed to market their bonds to retail investors with the help of a second, FCA-regulated company. That company will check that the advertisement (or “offer document”) for the bond is “clear, fair and not misleading” — but there is no set amount of due diligence they must carry out.
  3. And third, once consumers have invested in the bond they are not considered “a client” of the FCA-regulated company — so that company has no responsibilities towards them and no incentive to make sure that the investment is a good one.


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