FCA proposes rule changes for high-risk investments

The Financial Conduct Authority (FCA) has published proposals to strengthen its financial promotion rules for high-risk investments to help retail investors make more effective decisions.

The proposed changes follow feedback to its Call for Input (CFI) on consumer investments.
The discussion paper (DP) is seeking views on 3 areas where changes could be made to address harm to consumers from investing in inappropriate high-risk investments.

The 3 areas of focus are: the classification of high-risk investments, the segmentation of the high-risk investment market and the responsibilities of firms which approve financial promotions.

Recent research commissioned by the regulator on self-directed investors identified a growing trend of retail investors choosing to invest in inappropriate high-risk investments that do not meet their savings goals and investment needs.

The research found that over 4 in 10 (45 per cent) did not view ‘losing some money’ as a potential risk of investing.

The feedback to this discussion paper will help shape the rules the FCA plans to consult on later in the year, ensure they are feasible for firms to implement and that they have the intended impact.

The FCA is inviting feedback on the paper by 1 July 2021. It will consider the feedback received alongside further analysis and testing, and intends to consult on rule changes later this year

Sheldon Mills, executive director, consumers and competition at the FCA said: “We have been clear that we want to deliver a consumer investment market that works well for the millions of people who stand to benefit from it. We are concerned that too often consumers are investing in high-risk investments they don’t understand and can lead to significant and unexpected losses.

“We have already taken action by banning the mass-marketing of speculative mini-bonds. We continue to address harm in this market through our ongoing supervisory and enforcement action but recognise more needs to be done. Our latest proposals would further reduce the risk of people taking on inappropriate, high-risk investments that don’t meet their needs.”

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