FCA to impose marketing restrictions for high-risk investments

FCA to impose marketing restrictions for high-risk investments

The Financial Conduct Authority has strengthened rules to tackle misleading adverts that promote investing in high-risk products. 

In a 205-page policy document released today (August 1), the regulator said it wants to reduce the number of people investing in high-risk products which do not reflect their risk appetite.

The FCA said consumers were becoming increasingly more responsible for making complex decisions about how they invest due to long-term social and economic changes, and there is more choice of products and services than ever before.

Part of the problem, the FCA said, is that consumers were “clicking through” and accessing high-risk investments without understanding the risks involved.

Under the new rules, companies will need to use clearer and more prominent risk warnings. Positive frictions will need to be introduced to slow down the consumer’s journey.

Certain investing incentives such as refer a friend or new joiner bonuses will also be banned.

Companies that approve or issue marketing will be required to have appropriate expertise, and those that promote certain high-risk investments will have to conduct better checks to ensure consumers are well matched with their investments. 

The FCA’s classification of high-risk investments has also been simplified.

The regulator said it has intervened in significantly more financial promotions to prevent harm, with 4,226 adverts amended or withdrawn after intervention in the year to July 2022. 

FCA executive director of markets, Sarah Pritchard, said the regulator wants people to invest with confidence, understand the risks involved and invest according to their risk appetite.

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too,” she said. 

“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.”  

Senior personal finance analyst at Interactive Investor, Myron Jobson, welcomed the rules.

“The new rules add much needed red tape, requiring firms approving and issuing marketing to have the right expertise and those marketing some types of high-risk investments to conduct better checks to make sure those investments are well matched to consumers," he said.

He added that more nuanced conversation is needed about investment risk. 

“Investors need to truly understand their attitude to risk – would they be able to sleep at night if they purchased a risky investment in which they could lose their entire investments if things went south?”

The new rules do not apply to crypto asset promotions, as the FCA is waiting for legislation to confirm how crypto marketing will be brought under its remit.

However, these rules are expected to align with those for other high-risk investments.

Jobson said there is no time to delay on these rules.