FCA cracks down on rogue consumer investment firms
The City watchdog has slapped restrictions on twice as many consumer investment firms this year, as part of its crackdown on problem firms.
The Financial Conduct Authority (FCA) said that these restrictions are part of its strategy to prevent harm to consumers. They include preventing firms from promoting and selling certain products or providing specific services like advice on defined benefit pension transfers.
17 firms and seven individuals were stopped from obtaining authorisation in the investment market where phoenixing or lifeboating was suspected, the FCA said. This is where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to or setting up a new firm.
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The FCA also stopped the UK operations of 16 contracts for difference providers, that had entered the UK’s temporary permissions regime in 2021, where suspected scam activity was detected, or consumers were encouraged to trade excessively to generate revenue. The FCA claims that without its action, consumers could have lost around £100m a year.
“We want to see a consumer investment market where consumers can invest with confidence, understanding the level of risk they are taking, and where assertive action is taken when harm is identified,” said Sarah Pritchard, executive director of markets at the FCA. “We know that it will take time to see the full impact of all our interventions, particularly given the worsening economic environment, but have committed to update each year on the progress that is being made.
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“In the last year we have maintained our focus on acting assertively and innovatively to tackle harm – we prevented one in five firms from entering the consumer investments market and we have taken action against unauthorised firms with a 40 per cent increase in the number of consumer alerts issued. Setting high standards and acting quickly to crack down on problem firms will help ensure market and consumer confidence, supporting the integrity and growth of UK financial services.”
The regulator launched its three-year consumer investments strategy last year to enhance consumer protections, particularly for what it views as high-risk investments.
The strategy aims to reduce the number of people investing in products that it thinks are too risky for their needs and to slow the growth in investment scams.
The FCA has been keen to demonstrate a tougher approach to regulation, following a raft of scandals in recent years including the collapses of mini-bond provider London Capital & Finance and peer-to-peer lender Lendy, both of which left thousands of retail investors out of pocket.
It said that one in five applications from firms wanting to join the consumer investment market in 2021/22 were not approved or were withdrawn.
The FCA is also issuing more alerts to warn consumers of risks. It published over 1,800 consumer alerts about unauthorised firms or individuals last year, 40 per cent more than the previous year.
Meanwhile, it has rolled out ScamSmart and InvestSmart campaigns to help educate consumers of the risks in investing. 59 per cent more consumers used the FCA’s online ScamSmart resources last year to help them avoid scams, it said.
It has also made efforts to be more innovative in using data to tackle online fraud faster, including by scanning 100,000 websites every day and acting where a scam is suspected.