The Financial Reporting Council (FRC), the United Kingdom’s corporate governance regulator, announced Wednesday it has commenced three investigations into the audits of investment firm London Capital & Finance.

The investigations relate to the one-month period ended April 30, 2015, carried out by Oliver Clive & Co.; the year ended April 30, 2016, carried out by PwC; and the year ended April 30, 2017, carried out by EY. The investigations will be conducted by the FRC’s Enforcement Division under the Audit Enforcement Procedure.

The investigations are the result of a financial scandal in which London Capital & Finance sold £236 million (U.S. $293 million) worth of bonds promising investor returns of 6.5 to 8 percent a year. The investment firm ended up collapsing last year, however, with more than 11,000 investors suffering significant losses.

FCA investigation

Meanwhile, an independent investigation into the Financial Conduct Authority’s (FCA) handling of the matter has been delayed. In a May 15 email correspondence from Dame Elizabeth Gloster to FCA Chairman Charles Randell, Gloster said she formally notified the FCA that “it will not be possible” to complete her investigation by July 10.

“On the basis that the senior employee interviews … take place during the first half of June 2020 and there are no significant issues arising from the data that we have not yet received, I anticipate completing the report by the end of July/early August 2020,” she wrote. The revised target date for completion of the investigation would be Sept. 30.

In his response letter, Randell said the FCA “has no objection to the proposed extension” of Sept. 30, noting the “significant challenges” the coronavirus pandemic has posed for the regulatory body. The letter added the FCA must inform HM Treasury of the reason for the delay in the conclusion of the investigation and the revised target date.

Mini-bond ban

On June 18, the FCA announced proposals to make permanent its ban on the mass-marketing of speculative illiquid securities, including speculative mini-bonds, to retail investors—like those at the center of the London Capital & Finance investigation. The FCA said it introduced the ban without consultation in January following concerns that speculative mini-bonds were being promoted to retail investors who neither understood the risks involved nor could afford the potential financial losses.

“We know that investing in these types of products can lead to unexpected and significant losses for investors,” said Sheldon Mills, interim executive director of strategy and competition at the FCA. “Since we introduced the marketing ban, we have seen evidence that firms are promoting other types of bonds which are not regularly traded to retail investors. We are very concerned about this, and so we have proposed extending the scope of the ban.”

According to the FCA, the ban “will apply to the most complex and opaque arrangements where the funds raised are used to lend to a third party, or to buy or acquire investments, or to buy or fund the construction of property.” Exemptions include listed bonds that are regularly traded, companies that raise funds for their own commercial or industrial activities, and products that fund a single U.K. income-generating property investment.

The FCA said the ban “will mean that products caught by the rules can only be promoted to investors that firms know are sophisticated or high net worth. Marketing material produced or approved by an authorized firm will also have to include a specific risk warning and disclose any costs or payments to third parties that are deducted from the money raised from investors.”

The FCA has limited powers over the issuers of speculative mini-bonds who are usually unauthorized but can act when an authorized firm approves or communicates a financial promotion or directly advises on or sells these products.