The Financial Conduct Authority (FCA) has today published a new strategy to give consumers more confidence to invest and prevent them from being scammed or persuaded by investments too risky for their needs.
The FCA said that it aims to reduce the number of consumers who could benefit from investment earnings but are missing out by 20%, and halve the number who are investing in high-risk products that are not aligned to their needs.
Nearly 8.6 million consumers hold more than £10,000 of investible assets in cash, according to the regulator, while 6% of consumers increased their holdings of higher-risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.
It also intends to reduce the money lost to investment scams perpetrated or facilitated by regulated firms, with consumers losing nearly £570m to investment fraud in 2020/21, which was triple the amount recorded in 2018.
Moreover, the FCA said that it will stabilise the £833m compensation bill for the Financial Services Compensation Scheme (FSCS), and target a year-on-year reduction in the life distribution and investment intermediation (LDII) funding classes from 2025 to 2030.
The strategy includes a package of measures for achieving these aims, such as exploring regulatory changes to make it easier for firms to provide more help to consumers, and a new £11m investment harm campaign to help consumers make better-informed decisions.
“We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk,” said Sarah Pritchard, executive director of markets at the FCA.
“The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”
The consumer investments market accounts for £1.6trn held or invested by consumers through the services of over 6,000 wealth managers, advisors and investment platforms.
The FCA said it would also aim to strengthen the appointed representatives regime, as well as the financial promotions regime in three areas: the classification of high-risk investments, further segmenting the high-risk market, and strengthening the requirements on firms when they approve financial promotions.
Reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address, is another measure outlined in the strategy.
Moreover, the regulator said that it would be more assertive and agile in how it detects, disrupts and takes action against scammers.
“The eye-watering sums lost to investment scams is simply staggering,” commented Andrew Tully, technical director at Canada Life. “The scamming frenzy appears to be gathering pace as fraudsters use the cover of COVID-19 to prey on innocent victims.
“With so many organisations, regulators and financial providers involved in trying to spot and remove scams, I am supportive of one government body or organisation owning the strategy to drive out the scams and hold scammers to account, whether regulated or unregulated.”
Image credit: iStock
Author: Chris Seekings