The UK Financial Conduct Authority (FCA) today posted a plan to tackle investment harm.
The regulator notes that the consumer investments market accounts for £1.6 trillion held or invested by consumers through the services of over 6,000 wealth managers, advisors and investment platforms. While most of this market meets consumers’ needs, there are some areas where harm is occurring.
By 2025, the FCA will reduce by 20% the number of consumers who could benefit from investment earnings but are missing out. There are nearly 8.6 million consumers holding more than £10,000 of investible assets in cash.
According to the strategy, by 2025, the FCA will halve the number of consumers who are investing in higher risk products that are not aligned to their needs. The regulator says that 6% of consumers increased their holdings of higher risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.
The regulator also aims to reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms. Consumers lost nearly £570 million to investment fraud in 2020/21 – this has tripled since 2018.
To achieve these goals, the FCA has set out a package of measures including:
- exploring regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products;
- launching a new £11m investment harm campaign, to help consumers make better-informed investment decisions and to reduce the number of people investing in inappropriate high-risk investments;
- being more assertive and agile in how the FCA detects, disrupts and takes action against scammers, thereby reducing investment scams;
- strengthening the Appointed Representatives (AR) regime, with a consultation to be launched later this year, which aims to raise the quality of financial advice;
- strengthening the financial promotions regime in 3 areas; the classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions;
- reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address. This will reduce the cost and impact of poor advice.
The FCA has already taken action to improve the market, for example by banning the mass-marketing of speculative mini-bonds.
The FCA’s Consumer Investments Data Review, published alongside the strategy, shows that between 1 April 2020 and 31 March 2021, the FCA stopped 48 new firms from entering the market where the FCA identified potential for consumer harm (representing 1 in 5 applications).
During this period, the regulator opened over 1,700 supervisory cases involving scams or higher risk investments and published over 1,300 consumer alerts about unauthorised firms and individuals.