The Financial Conduct Authority has unveiled a suite of measures to increase retail investment and boost the UK’s investment culture.
This includes setting a “clearer boundary” between retail and professional investors, allowing firms to deal with professional investors with confidence operating outside retail regulations.
In a consultation paper, the watchdog said it wants to support firms to innovate and make investing more engaging for consumers.
Simon Walls, executive director of markets at the FCA, said: “Today’s measures support investment risk culture right along the spectrum. They ensure that firms can compete to give retail customers material that informs and engages them.
“They also draw a brighter line for professional markets, defined by contracting parties, informed consent, and regulation that is proportionate to that.”
The FCA said proposals remove some arbitrary tests and give firms more responsibility, including a new way for wealthy and experienced individuals to opt out of retail protections. This would free up firms to offer a more diverse range of products to experienced clients with the ability to bear the risks associated with more complex investments.
However, it said the threshold to qualify as a professional investor will remain high so only those with experience, advice or the ability to bear risk are taken out of retail protections.
“Our aim is to rebalance risk in a way that supports growth and competitiveness, which is at the heart of our strategy,” the FCA said in its consultation paper.
It will also make a decisive shift away from “prescriptive and complex” templates within retail investment disclosures that consumers don’t find useful.
This will give firms more freedom to put the consumer first, innovate, and help their customers understand potential returns as well as costs and risks, it said.
Commenting on the announcement, Jonathan Parry, partner in the capital markets group of White & Case LLP, said: “This is another step in the right direction from the FCA that will add to the growing momentum in London’s IPO market.
“Fostering a stronger investment culture in Britain and boosting retail investor participation in the stock market will strengthen London’s competitiveness by increasing liquidity, improving access to capital for companies and bringing the UK more in line with other jurisdictions such as the US and Nordics, which benefit greatly from strong cultures of retail investing.”
Barry Cook, interim proposition director at Quilter, also welcomed the proposals. “It is encouraging to see the FCA look to move towards a regime that allows providers greater flexibility to produce engaging product summaries. This innovation should improve customer understanding and reward firms that prioritise clarity and customer outcomes.
“The FCA’s recognition that professional investors and ultra-high-net-worth clients require different protections than retail investors is also significant. There is a push to widen the investible universe for clients, particularly around private markets, but this will only succeed if regulation reflects the investors’ ability to take on greater risk. Updating definitions alongside creating more bespoke regulation for particular cohorts should help people take positive action in their investment journey, and unlock new avenues for capital allocation.”
Cook said the changes will challenge how risk is perceived. “Risk should not be seen solely as a negative – far too many people in this country are either not investing or investing too cautiously for their needs and as such wealth creation is being left on the table. The FCA clearly recognises the need to wean the nation off cash savings for the long term and into investments that suit the customer’s long-term objectives,” he added.
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