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Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be very complex and high risk.

What are the key risks?

1. You could lose all the money you invest

• If the business issuing the bonds you invest in through this Service fails, there is a high risk that you will lose all your money. Businesses like this often fail as they usually use risky investment strategies.
• Advertised rates of return aren’t guaranteed. This is not a savings account. If the issuer doesn’t pay as agreed, you could earn less money than expected or nothing at all. Generally, a higher advertised rate of return means a higher risk of losing your money. If it looks too good to be true, it probably is.
• These investments are sometimes held in an Innovative Finance ISA (IFISA). While any potential gains from your investment will be tax free, you can still lose all your money. An IFISA does not reduce the risk of the investment or protect you from losses.

2. You are unlikely to be protected if something goes wrong

• [Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker here.
• [Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated firm, FOS may be able to consider it]. Learn more about FOS protection here.

3. You are unlikely to get your money back quickly

• The companies that receive loan monies could face cash-flow problems that delay interest payments. If this occurred en masse, it could impact the ability of the Service to repay investors their money.
• You are unlikely to be able to cash in your investment early by selling it. You are usually locked in during the period agreed. In the rare circumstances where it is possible to sell your investment in a ‘secondary market’, you may not find a buyer at the price you are willing to sell.

4. This is a complex investment

• This investment has a complex structure based on other risky investments. A business that lends to, or invests in, other businesses or property can make it difficult for the investor to know where their money is going.
• This makes it difficult to predict how risky the investment is, but it will most likely be high.
• You may wish to get financial advice before deciding to invest.

5. Don’t put all your eggs in one basket

• Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well.
• A good rule of thumb is not to invest more than 10% of your money in high-risk investments.

If you are interested in learning more about how to protect yourself, visit the FCA’s website here.

For further information about minibonds, visit the FCA’s website here.