FCA consumer investment strategy falls short of targets in first year
The Financial Conduct Authority (FCA) said that three of its four target outcomes for its consumer investment strategy have actually worsened since it launched the plan last year.
The City regulator launched its three-year strategy last September, aiming to protect consumers with tougher action on disreputable firms and more education around high-risk investments.
It planned to take action in four areas: improving access to mainstream investments, strengthening the rules around higher-risk investments, ramping up efforts against scams and fraud, and improving its consumer redress processes.
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It had four target outcomes, including a 20 per cent reduction in the number of consumers with higher risk tolerance holding over £10,000 in cash by 2025, and a 50 per cent reduction in the number of unsuitable consumers investing in high-risk products.
It also aimed for a reduction in the amount of money consumers lose to investment scams, and said it would act to stabilise the Life Distribution and Investment Intermediation (LDII) and Investment Provision (IP) funding classes by 2025, and target a year-on-year reduction in these classes from 2025 to 2030.
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However, three of the outcome metrics have fallen so far, the FCA said.
The proportion of UK adults with more than £10,000 in cash rose from 55 per cent (8.4 million) in 2020 to 58 per cent (9.7 million) in 2022.
Meanwhile, the number of UK adults holding high-risk investments rose from five per cent (2.4 million) in 2020 to eight per cent (4.1 million) in 2022. The 2022 figure rose to 11 per cent (5.7 million) when including mini-bonds, contracts for difference and shares in unlisted companies.
The FCA also revealed that there has been a 47 per cent increase in losses to investment fraud in 2021/22, to £914m, compared to £622m in 2020/21.
However, there was a 15 per cent decrease in LDII and IP compensation costs in 2021/22 to £385m compared to the previous year.
“We set ourselves four outcomes in our consumer investments strategy,” the FCA said. “Three of the outcomes targeted improvements by 2025, with the fourth by 2030.
“As it will take time to implement and see the impact of our interventions, we would not necessarily expect to see improvements in these long-term outcomes in the first year of the strategy.”
The watchdog said there is a time lag for many of the outcome indicators, as for example, the currently Financial Services Compensation Scheme costs reflect the impact of past misconduct.
“Overall, three of the outcome metrics have fallen, with one at risk of falling,” The FCA said. “Given this and the deteriorating economic context, we will continue to review the consumer investments strategy and reinforce our work where we identify growing consumer harm. We will report again on progress in 2023.”