City watchdog aims to halve number of investors in ‘high risk’ products
The Financial Conduct Authority (FCA) appears committed to pressing ahead with tougher marketing restrictions and financial promotions rules, which could hit peer-to-peer lenders.
The City watchdog has published a three-year strategy to enhance consumer protections, particularly for what it views as high-risk investments.
The FCA’s analysis said six per cent of adults invested in high-risk investments during the pandemic, while 45 per cent of self-directed investors said they did not realise the risks.
The regulator said it is aiming for a 50 per cent reduction in the number of consumers putting money into high-risk investments who indicate a low risk tolerance or demonstrate the characteristics of vulnerability, by 2025.
Over the next three years, the FCA said it would “strengthen the financial promotions regime in three areas, our classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions.”
It follows a call for input (CFI) on consumer investments that the FCA published in April, seeking views on whether more types of investments should be subject to marketing restrictions and if tougher rules on financial promotions are needed.
P2P lending and investment-based crowdfunding are listed among high-risk investments such as mini-bonds, cryptocurrencies and structured products.
The FCA said it has 31 live investigations or proceedings relating to the conduct of regulated firms and individuals where consumers have invested in potential scams or higher risk investments.
No P2P lenders are mentioned although the regulator is known to be investigating the collapse of platforms such as Lendy and FundingSecure.
“Higher risk investments may be suitable for consumers who understand the risks and can absorb any potential losses,” the FCA said.
“Overall, though, most retail investors’ needs can and should be met by straightforward, mass-market investments.”
“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,” Sarah Pritchard, executive director of markets at the FCA, said.
“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.”
P2P lenders have previously hit back against these proposals and the UK Crowdfunding Association sent research to the FCA in response that showed investors understand the risks in the sector.
