FCA targets investment harm with consumer investment strategy

The FCA said it wanted to reduce by a fifth before 2025 the number of consumers who could benefit from investment but are currently missing out. It has also set a target to halve the number of consumers investing in unsuitable, higher risk products, and reduce the amount of money lost to investment scams.

In order to achieve these aims, the FCA outlined plans to make regulatory changes to make it easier for firms to provide more help to consumers who want to invest in straightforward products. It said it would also strengthen the Appointed Representatives (AR) regime to improve the quality of financial advice; strengthen the financial promotions regime; and review the compensation framework to ensure that it remained proportionate and appropriate.

The FCA set out a timetable into the beginning of 2023 including consultations on the regulatory changes. It added that the measures would be backed by an £11 million campaign focused on investment harm.

Financial services expert Elizabeth Budd of Pinsent Masons, the law firm behind Out-Law, said the strategy built on previous FCA initiatives, including the financial advice market review, work on the fair treatment of vulnerable customers, the proposed consumer duty and this year’s Business Plan. 

“While this might be seen as yet more regulation or regulatory action against firms, in fact it has potential to be a win-win proposal. If firms are able to introduce the rigour around investment advice and clarity and appropriateness of products for potential customers, their upside will be to see less poor advice, fewer firms failing, a reduction in overall contributions to the compensation scheme and the potential for professional indemnity insurance to be more affordable and available,” Budd said.

Financial services expert Charlotte Pope-Williams of Pinsent Masons said: “Not only is this a material development in terms of protecting consumers from harm but it could represent a significant step forward in enhancing the economic agency of those groups of consumers who, for various reasons, have been disinclined or less likely to invest, such as women and ethnic minorities.”

The consumer investment strategy was backed up by a data review of the FCA’s work to tackle consumer harm in the investment market between April 2020 and March 2021. The data revealed the FCA had stopped almost one in five new firms from entering the consumer investment market after identifying the potential for consumer harm.

Over 1,700 cases were opened in the time period involving scams or higher risk investments, and the FCA received over 30,000 reports about potential unauthorised business – up 54% compared to the previous year.

The FCA said its work on scams had resulted in courts awarding £21.7m in consumer redress for unauthorised investment business and the freezing of nearly £7m of funds in 2020/21.