lucia's: ReGive faces questions over 5% savings bond

Mutual society offers huge returns, but is not authorised by the FSA, or covered by the Financial Services Compensation Scheme

An unregulated organisation is promising savers a market leading interest rate of 5% on money invested in social enterprises, which would leave savers unprotected by UK regulators should the organisation collapse.

ReGive, a mutual society registered with but not authorised by the Financial Services Authority (FSA), says it will pay 5% on its one-year fixed-rate savings bond. On its website, the organisation describes the bond as a "smart, ethical investment meeting your financial, social and environmental needs".

It is not clear whether this type of savings bond can be offered by an organisation that is not fully authorised and regulated by the FSA. Despite a prominent banner on the website stating that the organisation is an "FSA registered mutual society", ReGive is not authorised to sell regulated savings schemes, and people who invest in its scheme will not be able to complain to the Financial Ombudsman or be compensated by the Financial Services Compensation Scheme (FSCS) if things go wrong.

ReGive also claims on its website to be partly seed-funded by Lord Joffe, the human rights lawyer who represented Nelson Mandela, and is a former chairman of Oxfam and founder of Hambro Life Insurance, which later became Allied Dunbar.

But although Joffe funded a previous charitable project run by ReGive's founder, Abdul Muttakin Robbani, he denies providing capital to ReGive and is outraged that the society is using his name to give itself credibility. "I can't believe he's marketing on the basis of something that is quite untrue," he said.

Robbani said: "A few months ago, we did agree to remove his name from our temporary holding site. However, when the current live site was developed – our developers included references to Lord Joffe within it. However, you might notice that his name is not plastered all over the site but is deep within a section about our history – and again, what we stated there is fact. However, as a mark of respect for him and to abide by our previous agreement with him to remove his name from the site – we have done exactly this."

The FSA Mutuals Public Register shows that ReGive was registered on 21 December 2011 under the Industrial and Provident Act 1965. According to the FSA, most industrial and provident societies – including ReGive – are not regulated, and the structure is typically used by local co-operative organisations and working men's clubs.

The FSA says a registered mutual is responsible for considering whether any of its activities are regulated activities and if so, it must either rely on exemptions or apply for authorisation from the FSA for the conduct of such activities.

On its website, ReGive says its savings bond is issued "pursuant to the exemption to Section 21(1) of the Financial Services and Markets Act (FSMA) 2000 contained in paragraph 35 of the Financial Services and Markets Act 2000 (Financial Promotions) Order 2005 and does not require an approved prospectus pursuant to Section 85 Financial Services and Markets Act 2000 because the bond falls within paragraph 7(2)(a) of Schedule 11A of the Financial Services and Markets Act 2000 Prospectus Regulations 2005".

However the paragraph cited does not seem to exist.

When the Guardian tried to question ReGive about its regulatory status, a call centre operative said managers were too busy to talk to the press because of "huge demand for the bonds". She said she was one of four operatives taking "huge amounts" of money.

However in an email to the Guardian the company said: "The fact that we are not under the FSCS does not mean that investments are at greater operational risk (it just means that the protection is not provided by the government if we become insolvent). However, on the contrary, because we are not under the FSCS – it means that we are exceptionally careful, extra vigilant and especially prudent when looking after the funds under our management.

"Our investor protection mechanism is comparable to the FSCS and in some areas, surpasses it (eg, we don't limit the protection to £85,000 but to the whole value of the investment regardless of size)."

ReGive explained that it provides protection by operating under a stewardship structure which ensures that investors' money is "locked in a protected environment – where there is almost zero chance of capital loss". It went on to say that even if ReGive were to become insolvent, the funds could be "fully recovered instantly by our administrators and repaid back to the investors in full – and in some instances, also along with any accrued returns".

It claimed: "The AER [annual equivalent rate] that we are offering is easily achieved and paid to the investors on time. We do not take business or operational risks that might put the society at financial risk (as an example, we do not invest in the stock market or in complex financial instruments and we don't borrow from the money markets).

"We only focus on social enterprises, businesses, projects and programmes that generate outstanding net positive social and environmental impact."

It is not clear from its website how ReGive is generating its returns. Although in its email under the heading "The types of ethical projects we invest in", ReGive told the Guardian it was working with partners on a number of projects both in the UK and abroad, Robbani later denied that ReGive invests savers' money in social enterprises. He added: "We do not lend this money nor do we put it at risk. Our operational structure is different to banks."

The 5% offered is substantially higher than that advertised by any other financial services organisation on a one-year fixed-rate bond. The closest is a one-year bond from Cahoot paying 3.6%. While the Cahoot bond requires a minimum deposit of £25,000, the ReGive claims to pay its rate on just £100.

Andrew Hagger of Moneynet.co.uk said: "It doesn't look right. Our best-buy savings bond over five years is 4.5%, so the ReGive headline rate rings alarm bells immediately. With no Financial Services Compensation Scheme available and no recourse to the ombudsman, I wouldn't go anywhere near it."

A spokesman for the FSA said the regulator was aware of the company.

ReGive, which describes itself as a global organisation – gives a terraced house in Chelmsford as its registered address. The website says ReGive was originated and spun off as an "independent entity by a UK charity that worked for many decades as a channel through which significant amounts of impact capital was raised for social and environmental projects overseas".

That charity, Redaid, closed in December last year, a week before ReGive was registered and is now being investigated by the Charity Commission, which said in a statement: "The Charity Commission opened a statutory inquiry into RedAid (now removed charity 1108615) in December 2011 following serious concerns raised about its governance. The inquiry is ongoing and in accordance with our policy a report will be published on our website at the conclusion of the inquiry."

jill.insley@guardian.co.uk

Jill Insley