In a move that could have ramifications for a forthcoming massive A$2.0 billion plus hybrid issue by Commonwealth Bank, the UK's Financial Conduct Authority has banned UK banks from selling hybrid notes (Additional tier 1 capital) to retail investors. The ban applies not only to selling hybrid notes to retail investors in the UK but to retail investors anywhere in the European Union, and will remain in place until at least October 2015.The move by the Financial Conduct Authority (FCA) follows warnings to retail investors about the dangers of hybrid notes, issued the week before by the European Securities and Markets Authority and the Joint Committee of European Supervisory Authorities.  This suggests that the EU may be about to implement its own ban on retail sales.The FCA was established last year, in response to a string of financial product mis-selling scandals that engulfed most British banks, including NAB's UK subsidiaries.When announcing the ban, the FCA said that in a low interest rate environment many investors might be tempted by hybrid notes offering high headline returns. However, they are complex and can be highly risky.The FCA observed that the notes can be written off or converted into equity if capital at the bank which issued them falls below a pre-determined trigger level. Furthermore, there is growing concern that even professional investors may struggle to evaluate and price the hybrids properly, despite significant market appetite for these instruments.While there have been no losses incurred by UK investors to date, the FCA said that up to 75 percent of sales in some countries have been to retail investors, with the loss per customer in some cases being over 80 percent of their initial investment.While Australia does not have a regulator equivalent to the FCA, ASIC has issued numerous warnings in the past to retail investors about the dangers of hybrid notes. It has even gone as far as inserting its warning within the first few pages of some prospectuses.But ASIC's warnings have gone largely unheeded as retail investors have lapped up high yielding, hybrid notes issues from Australian banks. So far this year the banks have sold A$3.3 billion of hybrid notes and CBA is about to launch a new issue to replace its PERLS V notes (CBAPA), which will be called in October.Last year Australian banks sold A$6.3 billion of hybrid notes and in 2012, sold A$5.5 billion of transitional Tier 1 capital. All of these issues have been sold almost exclusively to retail investors because professional investors are either all too well aware of the risks involved or cannot accommodate franked dividends in a fixed income portfolio.In the meantime, retail investors have been so keen to chase the high yields on offer that credit spreads have been bid in to well below issue levels. The hybrid notes issued by ANZ and Westpac earlier this year were issued with credit spreads of 325 basis points and 305 bps and have since been bid in to 244 bps and 252 bps, respectively.At these