The UK’s Financial Conduct Authority has published proposals to bolster its financial promotion rules for high-risk investments in a bid to help retail investors make better decisions.
This move comes following a call for input on consumer investments.
In its discussion paper, the regulator is focused on three areas where it believes changes could reduce harm to consumers investing in inappropriate high-risk investments. These areas are classification of high-risk investments, the segmentation of the high-risk investment market and the responsibilities of firms which approve financial promotions.
FCA executive director, consumers and competition Sheldon Mills said, “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 our 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.”
The regulator decided to take action after its research revealed retail investors were increasingly choosing high-risk investments that didn’t meet their savings goals and investment needs. This is causing a lot of people to lose significant amounts of money. It said 45% of investors did not view ‘losing some money’ as a potential risk of investing.
Furthermore, the study claimed nearly two thirds of younger investors are taking big risks on their investments.
In regard to the classification of high-risk investments, the regulator wishing to determine whether more types of investments should be subject to marketing restrictions and what marketing restrictions should apply.
Under the area of further segmenting the high-risk investments market, the regulator is concerned too many investors are backing inappropriate high-risk investments which do not meet their needs. To solve this, it is exploring improvements to risk warnings, requiring consumers to watch educational videos and online tests to demonstrate sufficient knowledge.
Finally, for the approval of financial promotions, the FCA is asking if 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 regulator is asking for feedback by 1 July 2021. The FCA will then release its full response and further steps later in the year.
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