The UK Financial Conduct Authority (FCA) has issued stronger rules in regards to promoting what is deemed to be high risk investments. As anticipated, the FCA expects firms to use “clearer” and “more prominent risk warnings.” The tactic of offering a refer a friend bonus is now banned.
The regulator shared that in the past year ending in July 2022, 4226 adverts were amended or withdrawn after intervention from the FCA – significantly more than prior years.
Sarah Pritchard, FCA Executive Director, Markets, stated:
“We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk. Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act. This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”
The target of the tightened rules includes investment-based crowdfunding, peer-to-peer (P2P) lending, other non-readily realizable securities (NRRSs), and more. While crypto-assets have garnered much scrutiny, these potential investments are not part of the rules as the FCA awaits legislation to bring crypto under the remit of the FCA.
The FCA stated that digital asset promotions will likely follow a similar approach as “crypto remains high risk, so people need to be prepared to lose all their money if they choose to invest in cryptoassets.”
The consultation explains that impacted firms and individuals include:
- consumers investing, or who are considering investing, in high-risk investments
- authorised firms which approve financial promotions for unauthorised persons (section 21 approvers), whether for high‑risk investments or otherwise
- issuers of non-mainstream pooled investments, speculative illiquid securities and non-readily realisable securities
- investment-based crowdfunding (IBCF) platforms and other intermediaries distributing high‑risk investments to consumers
- loan based Peer-to-Peer (P2P) platforms
- trade bodies for the IBCF and P2P sectors 1.8
The final rules in this document will also be of interest to:
- firms operating in the cryptoasset sector and trade bodies for these firms
- any authorised firm in the consumer investments sector
- investment companies, and trade bodies for this sector
- issuers of other types of investments
- financial advisers
- firms managing a Long-Term Asset Fund
The FCA is welcoming feedback on the new rules with the expectation that final rules will be approved early next year. The consultation is available here.