The FCA recently published details of its new approach to consumer protection, which the regulator hopes will give consumers the confidence to invest.
Here ATEB Consulting’s Steve Bailey outlines the main points of the paper.
In its newly published approach to consumer protection, the FCA hopes to establish a strategy that will lead to fewer people being scammed or persuaded to invest in products too risky for their needs. Metrics will be published by the Regulator to assess whether these outcomes are being met.
By 2025, the FCA will:
- Reduce by 20% the number of consumers who could benefit from investment earnings but are missing out. There are nearly 8.6m consumers holding more than £10,000 of investible assets in cash.
- Halve the number of consumers who are investing in higher risk products that are not aligned to their needs. 6% of consumers increased their holdings of higher risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.
- Reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms. Consumers lost nearly £570m to investment fraud in 2020/21 – this has tripled since 2018.
- Stabilise the £833m compensation bill for the Financial Services Compensation Scheme, and target a year-on-year reduction in the Life Distribution and Investment Intermediation (LDII) and investment provision funding classes from 2025 to 2030.
To achieve this, the FCA has set out a package of measures including:
- exploring regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products
- launching a new £11m investment harm campaign, to help consumers make better-informed investment decisions and to reduce the number of people investing in inappropriate high-risk investments
- being more assertive and agile in how the FCA detects, disrupts and takes action against scammers, thereby reducing investment scams
- strengthening the Appointed Representatives (AR) regime, with a consultation to be launched later this year, which aims to raise the quality of financial advice
- strengthening the financial promotions regime in 3 areas; the classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions
- reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address. This will reduce the cost and impact of poor advice
Actions to date
The FCA has already taken action to improve the market, for example by banning the mass-marketing of speculative mini-bonds and by being more assertive through its ongoing work to stop and disrupt firms and activities causing harm.
The FCA’s data shows that between 1 April 2020 and 31 March 2021, the FCA’s work to tackle harm, included:
- stopping 48 new firms from entering the market where the FCA identified potential for consumer harm (representing 1 in 5 applications)
- opening over 1,700 supervisory cases involving scams or higher risk investments
- publishing over 1,300 consumer alerts about unauthorised firms and individuals.