FCA strengthens rules on promotion of high-risk financial products

The UK financial markets regulator has stepped up to address the ease with which people can make high-risk investment by significant strengthening of its rules.

The FCA has proposed that the rules on how high-risk financial products are marketed be tightened in order to protect consumers. The regulator has highlighted this as a central element of its Consumer Investments Strategy, published September 2021. The new policy aims to reduce the number of people investing in high-risk products that are not aligned to their needs.

New FCA rules

Sarah Pritchard, Executive Director of Markets at the FCA, said:

Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investment strategy.

Under the new rules FCA is proposing, the regulator would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered. The FCA will also have them improve risk warnings on ads and ban incentives to invest such as new joiner or refer-a-friend bonuses.

Moreover, customers looking to make certain high-risk investments would also be asked tougher questions about their knowledge and investment experience. The regulator noted that after research, it found many consumers were investing without being aware of the risks.

Additionally, the draft for the new rules includes restrictions on the marketing of cryptoassets. The move follows the recent announcement by the UK government that it will bring the promotion of these high-risk investments under the FCA’s remit.

When that happens, the FCA intends to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’. This means that consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors. Firms publishing such promotions would have to comply with FCA rules, such as the requirement to be clear, fair and not misleading.

According to the official announcement, the proposal will be open for feedback by 23 March 2022. The regulator plans to confirm its final rules in summer 2022.

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