04Dec

Adviser trade body calls for approval of unregulated promotions to be a regulated activity

There has been much publicity recently about issues related to products that are not regulated by the Financial Conduct Authority, including collective investment and schemes and mini-bonds.

A number of investors have suffered losses after investing in unregulated areas, and in many cases the customers were not aware that the products and schemes were unregulated.

Furthermore, when firms offering unregulated products fail, investors often have no recourse to the Financial Services Compensation Scheme.

Trade association the Personal Investment Management & Financial Advice Association (PIMFA) has now called for the approval of financial promotions to be an FCA-regulated activity, even where the product or service being promoted does not itself fall under the scope of FCA regulation.

The Association is especially concerned by promotions that promise high returns on investments. It says consumers are increasingly likely to be attracted to alternative investments because of the very low rates being offered on savings accounts, and that these consumers are often duped by false promises made in the promotions that these investments are low risk. Furthermore, the products are often marketed to inexperienced savers and to those on low incomes.

PIMFA says that making the approval of all promotions a regulated activity would allow the FCA to take enforcement action when firms distribute inappropriate promotions.

Simon Harrington, Senior Policy Adviser at PIMFA, commented:

“Given the potential for harm for consumers, and the cost that then falls onto firms in funding the FSCS, we believe that it is right that a gateway is introduced for the approval of financial promotions.

“However, as a result of the experience of many of PIMFA’s member firms of being regulated, we retain very little confidence that the level of Regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes is not sufficient and conducive to consumer harm.

“Making the approval of financial promotions a regulated activity would mean the FCA could take enforcement action against those firms that approve unsuitable investments without having the necessary expertise to do so.

“This will improve the market; reduce consumer harm and ultimately reduce calls on the Compensation Scheme where rising levies over the last five years have become unsustainable for PIMFA members. This is an easy win for all parties involved and we are urging them to grasp this opportunity.”

The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware of the facts, circumstances or legal position may change after publication of the article