The Finance Conduct Authority (FCA) has published proposals to strengthen its financial promotion rules for high-risk investments to help retail investors make more effective decisions.
Following feedback to its Call for Input (CFI) on consumer investments, the discussion paper (DP) sought views on three areas where changes could be made to address harm to consumers from investing in “inappropriate high-risk investments”.
The areas of focus included 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 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 FCA claimed that this can lead to “significant and unexpected” investment losses. The research of 517 self-directed investors surveyed between 18 August 2020 and 20 January 2021 also found that four in 10 (45%) respondents did not view “losing some money” as a potential risk of investing.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “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.”
He added: “Our latest proposals would further reduce the risk of people taking on inappropriate, high-risk investments that don’t meet their needs.”