The UK Financial Conduct Authority (FCA) today published proposals to strengthen its financial promotion rules for high-risk investments to help retail investors make more effective decisions. The publication of this new discussion paper follows feedback to the FCA’s Call for Input (CFI) on Consumer Investments.

The discussion paper (DP) seeks views on three areas where changes could be made to address harm to consumers from investing in inappropriate high-risk investments. These 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.

  • The classification of high-risk investments: The FCA’s classification of investments determines the level of marketing restrictions that applies to that investment. The FCA is seeking views on whether more types of investments should be subject to marketing restrictions and what marketing restrictions should apply, for example for equity shares and Peer-to-Peer agreements.
  • Further segmenting the high-risk investments market: The FCA is concerned that despite its existing marketing restrictions, too many consumers are still investing in inappropriate high-risk investments which do not meet their needs. Therefore, the FCA plans to strengthen its rules to further segment high-risk investments from other investments and is seeking views on how best to achieve this. The FCA is considering what improvements could be made to risk warnings, which are often perceived as white noise to many investors and often do not convey the genuine possibility of an investment loss.

Other suggestions in the paper include requiring consumers to watch educational videos or to pass an online test to demonstrate sufficient knowledge about financial products. This could help prevent consumers from simply clicking through and accessing high-risk investments that they do not understand.

  • The approval of financial promotions: Firms which approve financial promotions for unauthorised persons play a key role in ensuring those promotions meet the standards we expect. The FCA is seeking views on whether there should be more requirements for these firms to monitor a financial promotion on an ongoing basis, after approval, to ensure it remains clear, fair and not misleading.

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

Let’s recall that the regulator has already taken action to improve the market by permanently banning the mass-marketing of speculative illiquid assets (including speculative mini-bonds) to retail investors. The FCA recently launched a digital disruption campaign to prevent investment harm. The campaign uses online advertising to disrupt investors’ journeys and drive them to the high return investments webpage – which covers key questions consumers should ask before investing.

The regulator says it is also designing a new campaign to address the harm caused from consumers investing in high-risk, high-return, illiquid investments that may not be suitable for their needs.