The Financial Conduct Authority (FCA) is acting to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed. This is a central element of the FCA’s Consumer Investments Strategy, published in September 2021, which aims to give consumers the confidence to invest and reduce the number of people who are investing in high-risk products that are not aligned to their needs.
Under the proposed rules, the FCA would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered, improve risk warnings on ads and ban incentives to invest, for example new joiner or refer-a-friend bonuses. Those looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks.
The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the Government bringing the promotion of these high-risk investments under the FCA’s remit. When it does, the FCA plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors. Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading.
The FCA is inviting feedback on its proposals by 23 March 2022. It will consider all feedback before determining its final rules and, subject to the responses received, intends to confirm its final rules in summer 2022.
Sarah Pritchard, Executive Director of Markets at the FCA, said: ‘Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investment strategy.’
- CP22/2: Strengthening FCA financial promotion rules for high risk investments, including cryptoassets
- This consultation follows feedback to the FCA’s Discussion Paper, published in April 2021, on Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions.
- Many of the proposed interventions were tested using behavioural research and found to be effective. The FCA has published the findings of that research alongside the CP.
- Cryptoasset Consumer Research 2021 – whilst consumer awareness of crypto has risen, understanding of these products has fallen.
- HM Treasury has confirmed it intends to extend the scope of the Financial Promotions Order (FPO) to include qualifying cryptoassets.
- In December 2021, HM Treasury published a consultation on Financial promotion exemptions for high net worth individuals and sophisticated investors. The proposed reforms aim to reduce the risk that the exemptions are used for promotions to investors who do not meet the conditions.
- In 2021 the FCA launched its £11 million InvestSmart campaign, targeted online and via social media, and is aimed at helping consumers make better informed investment decisions.
- Later this year, the FCA will revisit whether to extend the scope of its speculative illiquid securities mass-marketing ban.
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Remember: Not everything is black and white when it comes to Financial Promotions, and many of the rules are open to interpretation. If you are unsure how your activities fit within the rules, please contact us.
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