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FCA sets out plan to tackle investment harm

September 20, 2021

What has happened?

In September 2021, the FCA published a new strategy aimed at giving consumers the confidence to invest using a high-quality, affordable advice market, which is intended to lead to fewer people being scammed or persuaded to invest in products too risky for their needs. The FCA will publish metrics to assess whether these outcomes are being met.

What do you need to do?

By 2025, the FCA plans to:

    • Reduce by 20% the number of consumers who could benefit from investment earnings but are missing out,
    • Halve the number of consumers investing in higher-risk products that are not aligned to their needs,
    • Reduce consumers’ losses to investment scams perpetrated or facilitated by regulated firms, and
    • Stabilise the £833m compensation bill for the Financial Services Compensation Scheme and target a year-on-year reduction in the Life Distribution and Investment Intermediation funding classes from 2025 to 2030.

To achieve this, the FCA authorisation process has set out a package of measures including:

    • exploring regulatory changes to enable firms to provide more sales and support services to mass-market consumers investing in straightforward products such as stocks and shares ISAs – the FCA plans to consult on these proposals early in 2022 so that they can be implemented at the start of 2023,
    • more assertive supervision and enforcement of SIPP providers and advisers,
    • launching a new investment harm campaign, to help consumers make better-informed investment decisions and to reduce the numbers investing in inappropriate high-risk investments,
    • being more assertive and agile in how it detects, disrupts and acts against scammers,
    • strengthening the Appointed Representatives regime, with a consultation to be launched later this year which aims to raise the quality of financial advice; as well as activity focused on high-risk principals, the FCA will also be increasing its scrutiny of firms when they appoint ARs. It proposes to consult on changes to its rules to clarify its expectations of principals and ensure that it can more effectively challenge them about their ability to oversee the activities of ARs before harm occurs. The FCA is also engaging with the Treasury about the potential for legislative change to strengthen the regime for principals and ARs,
    • strengthening 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 (see the FCA’s Discussion Paper DP 21/1 on this topic here) DP 21/1: Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions | FCA,
    • reviewing adviser capital requirements for non-MiFID firms – the FCA will consider consulting on changes to the capital requirements for non-MiFID adviser firms, taking account of the need to introduce such changes on an appropriate timescale. It will also consider changes to the requirements on holding PII, if appropriate, and
    • 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. This is intended to reduce the cost and impact of poor advice.

Please also see our blog post on the FCA’s proposed Consumer Duty here. The FCA authorisation process intends to provide further details of how it will work with firms in a second consultation on this topic expected to be published by the end of 2021, with new rules to be published by the end of July 2022.

The FCA’s Consumer Investments Data Review, published alongside the strategy, shows that between 1 April 2020 and 31 March 2021, the FCA’s work to tackle harm included:

    • stopping 48 new firms from entering the market, where the FCA identified potential for consumer harm (representing one in five applications),
    • opening over 1,700 supervisory cases involving scams or higher risk investments, and
    • publishing over 1,300 consumer alerts about unauthorised firms and individuals

The timescale for this work is as follows;

How can we help you?

If you’d like to know more about how we can help you with your investment advice, AR, FCA authorisation or financial promotions arrangements, or with any other regulatory compliance issues, our expert team is here to help.

Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.