Trade association PIMFA has urged the Government to tighten the rules around the promotion of unregulated financial products to protect consumers.
In response to HM Treasury’s consultation on the approval of financial promotions, PIMFA has called for the approval of unauthorised financial promotions to become a regulated activity.
It said the issue had become particularly important in the wake of the Covid-19 pandemic as an environment of low interest rates and financial anxiety prompts consumers to look for investments offering in excess of the rest of the market.
PIMFA warned that such products are not always marketed to sophisticated or high net-worth investors and are instead often targeted at those on lower incomes or inexperienced savers.
PIMFA added that if the approval of financial promotions was made a regulated activity, the Regulator would be able to take enforcement action on firms that approved unsuitable investments without the necessary expertise or due diligence and this would encourage more firms to consider their own practices.
Simon Harrington, senior policy adviser, PIMFA, said: “Given the potential for harm for consumers and the cost that then falls onto firms in funding the FSCS, we believe that it is right that a gateway is introduced for the approval of financial promotions.
“However, as a result of the experience of many of PIMFA’s member firms of being regulated, we retain very little confidence that the level of regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes, is not sufficient and conducive to consumer harm.”
Harrington explained that the approval of financial promotions as a regulated activity would also reduce calls on the Compensation Scheme, where rising levies over the last five years have become unsustainable for PIMFA members.
Harrington added: “This is an easy win for all parties involved and we are urging them to grasp this opportunity.”
