Sentinel Regulatory Services news & information

August 2026

The Financial Conduct Authority (FCA) has censured Equity for Growth (Securities) Limited (EFG) for approving minibond financial promotions that were “unfair, unclear, and misleading”. The FCA would have imposed a penalty of £386,467 had EFG not already been the subject of a winding up order.

On the face of it, this case reflects a straightforward breach of an FCA (albeit important) rule. However, scratch the surface and it reveals a repeated failure to protect retail clients from the type of sales activities the regulatory structure was designed to stop.  It is almost 25 years since “N2” when the Financial Services and Markets Act (FSMA) was implemented yet, despite the extensive regulatory infrastructure developed since then, unscrupulous firms and individuals remain able to skirt the regulatory perimeter to the detriment of retail investors. Although, at least in this case, with some belated consequences.

Background

The FCA’s Final Notice describes EFG as a “small corporate finance firm” able to authorise promotions of mini bonds through dint of its authorisation.  Its permissions included: advising on investments, advising on P2P agreements, arranging (bringing about) deals in investments, making arrangements with a view to transaction in investments, and agreeing to carry on a regulated activity with all client types.

EFG had three main income sources: Fees for the approval of financial promotions on behalf of unregulated minibond issuers, Appointed Representative (AR) retainer fees plus an hourly rate for providing compliance services (from a total of 5 ARs). Fees for acting as a receiving or placing agent for debt and equity capital raisings. In addition, EFG also received an income for acting as Security Trustee in respect of certain investments.

In just over 18 months from 1 January 2018, EFG approved “7 financial promotions – namely Information Memoranda – on behalf of 4 unregulated minibond issuers. These financial promotions were then used by EFG’s Appointed Representatives (ARs) and other (presumably unregulated) introducers to promote the minibonds to prospective investors, for which they charged a range of commission fees.”

The 4 minibond issuers raised a total of £15,316,361 from the sale of 608 minibonds, so just over an average £25,000 investment per bond that generated an estimated £1,490,900 in commissions for the ARs and introducers. 3 out of 4 of the relevant minibond issuers have since gone into liquidation.

The FCA notes that:

• “The commission fees that were charged by the ARs and the other introducers were a percentage of the total amount of investor funds that the ARs and other introducers individually raised. The commission fees were also paid out of the aggregated total of investor funds raised.”
• “The percentages of commission charged by EFG’s ARs and the other introducers were significant and ranged from between 15% and 27.5% depending on the minibond invested in. This meant that, in order for investors to receive the high rates of return promised on the minibonds (which … were as high as 18%), as well as receive their capital back, the minibonds needed to perform exceptionally well.”

“EFG failed to ensure that the 7 financial promotions set out above were fair, clear, and not misleading in accordance with COBS 4.2.1(1)R), because they failed to disclose the following information:

• the level and range of commissions that EFG knew could be charged to promote each respective minibond investment;
• that the commission charged to promote each respective minibond could be even higher than the known level and range;
• that the total commission fee would be deducted as an aggregate from the overall investment fund, so that all investors, irrespective of their route to investment (including those who invested directly with the unregulated minibond issuer and who therefore had no reason to believe they would be paying introducer commissions at all), would have to pay the same commission fee; and
• that owing to the multiple routes to investment and the varying levels of commission fees charged by the different ARs and introducers, it was impossible to calculate – at the point of investment – the total commission that would be deducted from the overall investment fund, and consequently the exact commission fee that would be deducted from an individual investor’s funds.

These failings resulted in investors being unable to make an informed decision or accurately assess the risk in investing in the minibonds. This is because they did not have an accurate picture of the investment overall, the risk to their capital being repaid or the likelihood of receiving the stated returns. Significantly, in the case of those investors who invested directly with the unregulated minibond issuer (rather than through introducers), they had no knowledge that they were in effect 5 subsidising the commissions paid by those investors who had been introduced by the ARs and the other introducers.”

Summary

This case involves a number of regulatory issues that have dogged the FCA over recent years including unregulated minibonds mis-sold to unsophisticated retail clients by ARs and introducers incentivised by undisclosed high commission fees. Often enabled by authorised firms approving sub-standard financial promotions.

Finally, it is a timely reminder of the importance of ensuring that financial promotions are “fair, clear and not misleading”, are targeted at the relevant client types and clear audit trails are kept to support their categorisation.

The FCA’s final notice (see link below) makes interesting reading.

https://www.fca.org.uk/publication/final-notices/equity-for-growth-securities-limited-july-2026.pdf