UPDATE 1-UK watchdog bans sale of bank CoCo bonds to mass retail market

* Ban applies for year ahead of permanent rules

* No CoCo has been written down yet in Britain

* EU watchdog has also warned on risks from CoCos (Adds more detail)

By Huw Jones

LONDON, Aug 5 (Reuters) - Britain's banks are banned fromoffering risky and complex hybrid debt known as contingentconvertible bonds or CoCos to the mass market from October, thecountry's Financial Conduct Authority (FCA) said on Tuesday.

Faced with pressure from regulators to bolster their capitalcushions, banks are set to issue CoCo bonds in ever largeramounts to shield taxpayers from having to rescue failinglenders like in the 2007-09 financial crisis.

The bonds can be written off or converted into equity ifcapital at the bank which issued them falls below apre-determined "trigger" level.

Some $70 billion of CoCos were issued between 2009 and 2013with a fifth from UK banks, the FCA said. Total issuance is setto roughly double over the next five years or so.

So far no CoCo has been wiped out in Britain but thewatchdog wants to anticipate any problems.

"In a low interest rate environment many investors might betempted by CoCos offering high headline returns," ChristopherWoolard, FCA director of policy said in a statement.

"However, they are complex and can be highly risky, and theFCA has used its new powers to ensure that CoCos are notinappropriately made available to the mass retail market whilestill allowing access for experienced investors."

The FCA was launched last year in a bid to protect consumersbetter after a string of mis-selling scandals and the watchdoghas powers to ban or vary how a product is sold.

Distribution will be limited to professional, institutionaland sophisticated or wealthy retail investors ahead of a publicconsultation on permanent rules later this year.

The restriction on sales and marketing will apply to retailclients anywhere in the European Union.

At present there is little experience of how CoCos operatein practice and the UK market is at an early stage ofdevelopment, the watchdog said.

"Despite significant market appetite for these instruments,there is growing concern that even professional investors maystruggle to evaluate and price CoCos properly," the FCA said.

It said that up to 75 percent of sales in some countrieshave been to retail investors, with the loss per customer insome cases over 80 percent of their initial investment.

The FCA's intervention follows a warning to retail investorslast week about CoCos from the European Union's bankingwatchdog. (Editing by Matt Scuffham and Mark Potter)