In 2020, the Financial Conduct Authority fined only 10 firms, which was the lowest number of monetary penalties imposed since the organisation’s foundation. However, the FCA was keen to highlight the other action it has taken against firms when it recently published the Customer Investments Data Review. The information in the Review was taken from the first ten months of last year.
The regulator acknowledges that some of the most serious consumer harms it sees are caused by activities outside of its regulatory perimeter, and as a result of various scams, many of which originate overseas.
Another significant area of concern is high-risk investments, when the FCA says “most retail investors’ needs can and should be met by more straightforward, mass-market investments.” Specifically regarding the risks of certain investments, the report says:
“Our research shows that consumers, particularly the more vulnerable, are less likely to understand the risks, read the small print and don’t know what to do when things go wrong. These consumers can also often neither afford the loss nor recover from it.”
The products of particular concern in this respect include:
- unregulated collective investment schemes
- structured products, derivatives and Contracts for Difference
- Venture Capital Trusts
- exchange tokens or cryptocurrencies (eg Bitcoin)
- investment-based crowdfunding
- peer-to-peer lending
3,885 firms applied for authorisation from the FCA during the ten-month period, but the regulator effectively stopped 343 (around 9%) of these applications from proceeding. In four of these cases, the FCA declined a complete application from the firm and in all of the other cases, the firm withdrew their application “because they couldn’t demonstrate that they could meet the standards required.”
12 more firms were prevented from obtaining authorisation as they were suspected of inappropriate ‘phoenixing’, i.e. they gave inappropriate advice at a previous firm and then sought to avoid the consequences of their actions by setting up a new firm.
Between January and October, 131 firms had their authorisations revoked for breaches of the FCA’s Threshold Conditions.
The period covered by the report saw the FCA receive 24,366 reports about potential unauthorised activity. This led to £14.32 million being awarded under restitution orders, almost £7 million worth of funds being frozen and nearly £6 million being secured for investors for redistribution.
Complaints redress was the next topic covered in the report. £56.7 million of redress was paid for investments complaints and £70.1 million for pensions complaints between January and October. The average amount of compensation paid for each upheld complaint in these areas was £826 and £1,145 respectively. This is a report about investment issues, so other areas that attract a lot of complaints, such as insurance, were not included.
The most complained about products are, not surprisingly, the ones that are taken out in the greatest volumes, such as personal pensions and ISAs. However, the report also shows which products attract the most complaints per 1,000 product sales:
- Foreign exchange / contracts for difference / spread betting: 36
- Crowdfunding and peer-to-peer lending: 21
- Structured products: 18
Sheldon Mills, Executive Director, Consumers and Competition at the FCA, said:
“The UK has one of the world’s leading financial services industries, offering consumers access to a wide range of investment products. In some areas however, the consumer investment market is not working as well as it should and too often consumers are offered unsuitable products or advice. Protecting consumers and ensuring they have confidence in the suitability of advice they receive is a key priority for the FCA and today’s report highlights some of the work we are undertaking to achieve this.”