On the back of a host of mis-selling scandals, the Financial Conduct Authority has set out three proposals to strengthen its financial promotion rules for high-risk investments.
The goal is to help retail investors make more effective decisions.
Sheldon Mills, executive director, consumers and competition at the FCA, commented: “We have been clear that we want to deliver a consumer investment market that works well for the millions of people who stand to benefit from it.
“We are concerned that too often consumers are investing in high-risk investments they don’t understand and can lead to significant and unexpected losses.
“We have already taken action by banning the mass-marketing of speculative mini-bonds. We continue to address harm in this market through out ongoing supervisory and enforcement action but recognise more needs to be done. Our latest proposals would further reduce the risk of people taking on inappropriate, high-risk investments that don’t meet their needs.”
Call for input
The discussion paper, published on 29 April, outlines three main areas where the watchdog intends to strengthen its financial promotion rules to help investors make more effective decisions that meet their savings and investment needs.
The classification of high-risk investments: This determines the level of marketing restrictions that applies to that investment.
- The FCA is seeking views on whether more types of investments should be subject to marketing restrictions and what marketing restrictions should apply, for example for equity shares and peer-to-peer agreements.
Further segmenting the high-risk investments market: The FCA is concerned that, despite its existing marketing restrictions, too many consumers are still investing in inappropriate high-risk investments which do not meet their needs. Therefore, the FCA plans to strengthen its rules to further segment high-risk investments from other investments and is seeking views on how best to achieve this.
- The FCA is considering what improvements could be made to risk warnings, which are often perceived as white noise to many investors and often do not convey the genuine possibility of an investment loss. Other suggestions in the paper include requiring consumers to watch educational videos or to pass an online test to demonstrate sufficient knowledge about financial products. This could help prevent consumers from simply clicking through and accessing high-risk investments that they do not understand.
The approval of financial promotions: Firms which approve financial promotions for unauthorised persons play a key role in ensuring those promotions meet the standards the financial regulator expects.
- The FCA is seeking views on whether there should be more requirements for these firms to monitor a financial promotion on an ongoing basis, after approval, to ensure it remains clear, fair and not misleading.
The discussion paper is open for feedback until 1 July 2021 – it can be found here.