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FCA high-risk product move 'good start' say Planners

Financial Planners have told Financial Planning Today that they welcome the Financial Conduct Authority (FCA) proposals to strengthen financial promotion rules for high-risk investments, but also suggested more work should be directed at banning other unregulated speculative investments.

A discussion paper published today by the FCA is seeking views on whether more types of investments such as equity shares should be classified as high-risk investments, how it can further segment the high-risk investment market and what risk warnings they should have attached, and whether there should be more requirements to monitor financial promotions on an ongoing basis. 

Keith Churchouse, director and Certified Financial Planner at Chapters Financial, said issues surround financial promotions have been a problem for a while but have been exacerbated by the Coronavirus pandemic.

He welcomed the proposal from the FCA to extend the classification of high-risk investments.

He said: “The issues surrounding financial promotions have been around for as long as I can remember. However, the speed and mode through which promotions can be delivered via technology has increased dramatically of late, along with the sophistication and complications of the end product being offered. This position I believe has been exacerbated by the various lockdowns, with consumers at ever greater risk of getting into investments that they do not understand and if they did, would not want. Therefore, any continued review and extension is welcome to reduce consumer detriment.”

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Martin Bamford, Chartered Financial Planner at Informed Choice, also welcomed the proposal for the FCA and said it provides an opportunity for the regulator to establish clear rules.

He said: “The financial promotions regime is in need of urgent reform to make it fit for the 21st century. The combination of retirees being lured by the promise of high return, low-risk products as alternatives to the meagre returns from cash savings, and the emergence of social media influencers shilling highly speculative schemes including cryptocurrencies means better regulatory protection is required. The FCA has an opportunity here to establish clear rules and guidance, enabling them to come down hard on those that prey on vulnerable consumers of all ages.”

However, some Financial Planners shared concerns that the proposals could just add more red-tape and that more work needs to be done on banning other unregulated speculative investments.

Ricky Chan, director and Chartered Financial Planner at IFS Wealth & Pensions, said: “This is certainly a positive step as the FCA has stood on the side lines for far too long. However, these consultations tend to drag out and the issue I have is that this usually adds more red-tape to regulated advisers, most of whom recommend simple, mainstream investments.

“More work should be directed at banning the promotion of other unregulated, speculative investments (such as the recent banning of mini-bonds). And the FCA, FSCS etc. should adhere more to the principle of ‘Caveat Emptor’ – to some extent, individuals need to take more responsibility over their own investment decisions. They should not benefit both ways – i.e. making a financial gain if the “punt” pays off, and receiving compensation if it does not. Regulated advisers that wish to advise on unregulated investments should be required to demonstrate annual continued professional development in this area and also contribute a higher proportion to annual FCA/FSCS fees.”

PIMFA, the trade association for wealth management and financial advice, has also welcome the proposals to strengthen the rules around financial promotions for high-risk investments.

Simon Harrington, senior policy adviser at PIMFA, said: “This discussion paper shows that the FCA is serious about reducing consumer harm by addressing the drivers proactively before it has been allowed to develop within the market.

“We believe that these interventions, in partnership with the approval of these promotions being a regulated activity will go a long way towards ensuring mass market consumers are well protected and able to transact with confidence in a thriving consumer investment market.”


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