The City regulator is looking for views on how to tackle the issue of high-risk investment promotions, fearing too many consumers are unwittingly taking too much risk with their money.
The Financial Conduct Authority (FCA) is concerned consumers are investing in inappropriate, high-risk investments that are unsuitable for most people.
The watchdog has recently warned that young people in particular are engaging with risky investments like foreign exchange and cryptocurrency, a trend in part being driven by social media and the rise of so-called ‘finfluencers’ on platforms like TikTok.
The FCA is looking specifically at promotions of high-risk investments, and any changes it can make to its rules to make consumers safer.
With that said, the FCA’s hands are tied to a certain extent, as many high-risk investments are unregulated, and so the issuer is an unauthorised person, meaning they do not come under the FCA’s scope.
The regulator would like feedback on the classification of high-risk investments, which determines the level of marketing restrictions that apply to the product or firm; ways to segment high-risk investments from others; and on ways to monitor if financial promotions are fair, clear and not misleading on an ongoing basis.
Sheldon Mills, executive director of 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.”
Adverts for Bitcoin can be found on the London Underground, and young people in particular are likely to come across amateur traders on social media, claiming investment success is as simple as buying low and selling high.
Interactive Investor CEO Richard Wilson welcomed the FCA’s consultation, but said the proposals missed a broader point about what it means to be an FCA-regulated firm.
“How companies describe themselves is not regulated,” he said. “The term ‘FCA regulated’ does not tell people whether they are walking into a bank, an investment platform, or effectively in a casino. ‘FCA regulated’ doesn’t mean very much when you have lost your shirt by inadvertently investing in complex instruments without even realising it.
“Regulatory perimeters need to be tightened along with advertising,” he added.
II head of pensions and savings Becky O’Connor said people feeling “flush” after lockdown were looking to find quick ways of making a profit, putting them at risk of investing in high-risk products that are not right for their circumstances.
“It’s becoming increasingly difficult for everyday investors to work out what is and isn’t legitimate though, too. There’s a ‘Wild West’ feel to some elements of the investment market now. It makes doing your own research and building up knowledge for yourself all the more important,” she said.
Products such as P2P lending, crowdfunding and cryptoassets could come under closer scrutiny and potentially face greater restrictions on who they can be marketed to.
Matt Hopkins, head of digital banking & fintech at BDO, added: “This is a clear signal that the FCA is aiming to bring high-risk investment to an end for retail investors.
“P2P platforms have already seen restrictions placed on how they market their products, and today’s paper is a sign that further regulation may be coming.”