FCA sets six-month countdown for high-risk promotions

The FCA has introduced new rules to prevent misleading adverts for high risk financial products.

Provisions include:

• Firms approving and issuing marketing must have appropriate expertise

• Firms marketing certain high-risk investments will need to conduct better checks to ensure consumers and investments are well matched

• Firms must use clearer and more prominent risk warnings

• Investment incentives such as ‘refer a friend’ bonuses are banned

At this stage cryptoassets will not be covered by the regulation, as the Government has not confirmed in legislation how far they fall under the FCA’s remit. However, the statement noted that they would likely fall under the same rules once this happens.

There will be an implementation period of four months for the main risk warning proposals, while other rules have an implementation period of six months before coming into effect.

The FCA said that consumer research had shown that many people were investing in asset classes without fully understanding the risks, a trend which it said had accelerated during the pandemic.

For example, 45% of new self‑directed (ie non‑advised) investors claimed they did not view ‘losing some money’ as a potential risk from investing. Meanwhile, the proportion of consumers owning certain high‑risk investments increased by 65% between March 2020 and June 2021.

The regulator said that the need to regulate this class of investments had grown since the beginning of the year as inflation had increased, since many products would now be generating net negative returns.

The ultimate goal is to achieve a 50% reduction by 2025 in the number of consumers “investing in high‑risk investments who indicate a low risk tolerance or demonstrate the characteristics of vulnerability”.

Sarah Pritchard, Executive Director, Markets said: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.

“This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”

Credit: ipuwadol