The FCA has announced today that it is temporarily restricting the retail distribution of contingent convertible instruments (“CoCos”).CoCos are hybrid capital securities that absorb losses when the capital of the issuer falls below a certain level.


In the current low interest rate environment, CoCos have proved to be attractive to investors because they offer high headline returns. But there has been increasing concern amongst regulators that investors do not properly understand the complexities of, and risks embedded within, CoCos. 

The FCA’s new restrictions will limit the ability of firms to distribute CoCos to retail customers. Sales to professional or institutional investors, or to exempt persons, will still be allowed.

These temporary rules will apply to all authorised persons in the UK (including issuers of CoCos and firms promoting or intermediating transactions in CoCos). However, early reports indicate that the ban does not include indirect exposure via investment funds or occupational pension schemes.

The FCA’s temporary restrictions on the retail distribution of CoCos will come into effect on 1 October 2014 and will lapse on 1 October 2015.

A consultation paper about proposed permanent rules on CoCos will be published by the FCA in September 2014, with final rules scheduled to take effect from 1 October 2015.