FCA hints at clamp down on sophisticated and HNW investor exemptions
The Financial Conduct Authority (FCA) has called for amendments to be made to financial promotion laws, including new protections for consumers who are being urged to self-certify as ‘sophisticated’ or ‘high net worth’ investors in order to access higher-risk products.
In the FCA’s annual perimeter report, the regulator has identified a number of areas where consumer vulnerabilities have been spotted.
The report found that many retail investors are being coached on how to pass themselves off as sophisticated or high net worth investors so that they can invest in higher-risk products including peer-to-peer lending.
“We have seen evidence of unauthorised firms abusing these exemptions by coaching ordinary consumers to self-certify,” said the FCA.
“Investors who do not meet these tests are being ‘pushed’ through them, often by unregulated firms. This unscrupulous behaviour is sometimes helped by the appeal to some retail investors of self-certifying themselves as ‘sophisticated’ or ‘high net worth’ and the sense of exclusivity that the exemptions offer.
“We act when we find evidence of this abuse of our exemptions, but it is inherently difficult for us to police as it generally involves individuals we don’t authorise.”
Read more: Industry blasts proposal for P2P development loan marketing ban
The perimeter report has also called for legislative change to protect consumers from online scams and fraud offences.
“The FCA is committed to being more innovative, assertive and adaptive,” said Nikhil Rathi (pictured), chief executive of the FCA.
“That means being more proactive at the limits of our regulation, working with partners and other agencies where we don’t have powers and setting out where we believe more powers are necessary.
Read more: City watchdog aims to halve number of investors in ‘high risk’ products
“We see real risks to consumers from outside our remit from both online advertising and from those using exemptions to sell products to ordinary customers. Change is needed and we will continue to push for powers where we need them.”
The report highlighted the potential risk of buy-now, pay-later products. The regulator confirmed that it was working with the Treasury to help shape the new regulatory regime for these products.
The FCA also name-checked the Online Safety Bill, which is currently making its way through Parliament. The regulator has called for the bill to be extended to cover paid-for advertising and user-generated content in an effort to protect consumers from financial fraud.
Read more: FCA launches £11m campaign to highlight pitfalls of high-risk investments
