Image copyright Getty Images Image caption Two businesses founded by TV presenter Kevin McCloud raised money through mini-bonds

Marketing of high-risk investments - known as mini-bonds - to regular savers is to be banned by the City regulator.

Armchair investors have been tempted by the returns promised on these speculative bonds, which were often much greater than mainstream products.

But they have been at the heart of scandals, such as the collapse of London Capital & Finance (LCF) when 12,000 people lost money.

The Financial Conduct Authority (FCA) marketing ban starts in January.

The ban will last initially for 12 months, while the FCA considers permanent rules.

What is a mini-bond?

A mini-bond is described by the FCA as being a kind of IOU issued by a company to an investor. In return, the investor receives a fixed rate of interest over a set period of time. At the end of this period, the investors' money is due to be repaid.

The return on investors' money entirely depends on the success and proper running of the issuer's business. If the business fails, investors may get nothing back.

The ban applies to arrangements where funds raised from a mini-bond are used to lend to a third party, invest in other companies or buy properties.

The FCA only has power to intervene in marketing - not in the sale of the products themselves.

The regulator said they could still be marketed to "sophisticated investors", who could declare themselves able to understand the risks, or high net-worth individuals with an annual income of more than £100,000 or net assets of £250,000 or more.

Why have they been in the spotlight?

Earlier this year, people lost money on two investments involving mini-bonds.

Almost 12,000 people who put a total of £236m into a high-risk bond scheme marketed as a fixed-rate ISA with London Capital & Finance (LCF), lost their money.

Image copyright LCF promotional material Image caption London Capital & Finance marketing promised high returns

LCF advertised itself as a low-risk ISA, but in reality the fund did not qualify as an ISA.

Then last month, investors who put money into two businesses started by Grand Designs presenter Kevin McCloud were warned they could lose their investment.

HAB Land Finance and its owner HAB Land called in liquidators after a period of "difficult trading".

Potential investors were pitched mini-bonds with 8% returns to crowdfund two projects.

'Inappropriate'

Andrew Bailey, FCA chief executive, told the BBC's Today programme: "This is the sixth piece of intervention we're doing this year. We are also in close discussions with the internet service companies, because we want to limit the marketing of these things through that channel.

"We think it is inappropriate to market the complex versions of these instruments to retail customers, not to the high net-worth individuals, but to retail customers.

"We want to see more action. I'm keen that the legislation that the government proposed on online harms - which I know addresses really important issues which are outside our world - can also include financial harms.

"I also want more action from Google - I think they can play a big role because it is the major channel now and we find these things just popping up all the time."

Moira O'Neill, head of personal finance at Interactive Investor, said she could understand the attraction of mini-bonds.

"Savers are now in the unfortunate position where even if they can lock their money away for four years, they will only get 2%. So the prospect of lending money to a company via a mini-bond for a similar period and getting four times that amount, or more, is tempting," she said.

"But mini-bonds are paying higher rates than bank accounts precisely because they do contain an element of risk - essentially the risk that the company could go out of business.

"And it's often too difficult for customers to assess if are they paying enough to take that risk."