The Financial Conduct Authority has launched a major new initiative aimed at reducing the harm suffered by consumers who decide to invest. It says its strategy is “aimed at giving consumers the confidence to invest, supported by a high-quality, affordable advice market, which should lead to fewer people being scammed or persuaded to invest in products too risky for their needs.”
The FCA’s central aims, as part of its five-year plan, are:
- To reduce by 20% the number of customers who could benefit from investing but choose not to do so – here it notes that 8.6 million people have £10,000 or more of investible funds held in cash
- To reduce by 50% the number of consumers who invest in inappropriately risky areas – here the regulator claims that 45% of self-directed investors said they didn’t understand the risks associated with their chosen investment vehicle. Meanwhile, younger consumers are increasingly drawn to cryptocurrencies and crowdfunding investments
- To reduce, by an unspecified amount, the sum consumers lose in investment scams that are “perpetrated or facilitated by regulated firms”
The measures the FCA will take to achieve these goals include:
- Examining if changes can be made to regulations to make it easier for firms to assist customers with simple investment goals
- Spending £11 million on a campaign to better educate the public and assist them in making informed investment decisions, so that they don’t invest in inappropriately high-risk areas
- Becoming a more assertive regulator in the way it tackles scams
- Introducing new requirements for financial promotions
- Introducing a new duty of care, or Consumer Duty, for all authorised firms
The FCA notes that it has already taken action to ban the marketing of mini-bonds. In the 2020/21 financial year, it rejected one in five new authorisation applications as it believed that the firm in question could potentially cause consumer harm. Over the same period, it opened more than 1,700 supervisory cases involving scams or higher risk investments and published more than 1,300 consumer alerts about unauthorised firms and individuals.
Specifically regarding higher risk investments, the strategy document says:
“We do not want to restrict consumers if they want to invest, but we do want them to be able to access and identify investments that suit their circumstances and attitude to risk. Key to this is ensuring that consumers can get the advice or support they need, that they only access higher risk investments knowingly and that they are protected from scams.”
The document also makes reference to 53% of pension and investment complaints being upheld, which also suggests that a significant degree of consumer harm exists in the market.
In the 2020/21 financial year, 23,378 consumers reported losing £569 million to investment fraud, an average of around £24,000 each.
Financial advice could have a role to play in educating the public, but the FCA says that only 8% of UK adults received professional advice during the previous 12 months, and that around half of those with holdings of £10,000 or more did not receive any formal support to assist them with investment decisions.
Sarah Pritchard, Executive Director of Markets at the FCA, said:
“Investors have never had more freedom – technology has democratised the market, new products have become available, and people have better access to their life savings than before. But that freedom comes with risk. We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk. The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”