Financial Conduct Authority  

FCA hints at restrictions on high risk assets

FCA hints at restrictions on high risk assets

The Financial Conduct Authority is poised to restrict the sale of high risk assets but warned banning unregulated products altogether was "not quite so simple".

Speaking at the Cambridge Economic Crime Symposium last night (September 4) Charles Randell, chairman of the FCA, conceded too much confusion existed in the market about which financial products were regulated and which were not. 

Mr Randell warned "skimmers and scammers" often operated in the "grey areas" around the boundaries of regulation and protection in financial services and admitted further action was needed to protect consumers. 

He said: "Something’s not right here. We need to consider whether these issues are best addressed by further restrictions on the sale of high cost, risky and illiquid investments, by changing the scope of FSCS coverage, or both."

Mr Randell said calls had recently been made for a "straight ban" on the sale of regulated investments by FCA authorised firms, but the chairman warned this "apparently simple and obvious step" was not so simple. 

He said: "Because the FCA doesn’t, for example, regulate the issue of shares or bonds.  

"So it would be necessary to decide whether FCA authorised firms could continue to recommend that people buy shares and bonds directly, the two main components of a traditional investment portfolio."

The high-profile case of London Capital & Finance has most recently brought the issue of blurred lines between regulated and unregulated financial products into the spotlight.

Bondholders face losses in the millions after investing with the mini-bond provider, which was authorised by the FCA but did not need authorisation to issue the unregulated investments. 

According to the FCA London Capital & Finance signed clients up to fixed-rate Isas promising 8 per cent interest, with investors' capital then invested into mini-bonds used to issue loans to small businesses.

As mini-bonds are unregulated investments the issue of whether clients can now claim under the Financial Services Compensation Scheme is still under debate. 

Mr Randell added: "Of course I agree that we need to stop FCA authorised firms from advising consumers to buy unsuitable investments.  

"But the complexities of this simple proposal demonstrate that changes in this area need careful thought.

"Even so, complexity isn’t a good reason for avoiding fundamental questions about the current system."  

The chairman also called on the wider industry to help in its efforts to tackle financial crime and fraud, warning, even if the FCA had the powers to do so, the regulator could not take on the investigation and prosecution of "all investment activity which is fraudulently promoted on the internet". 

Mr Randell said: "We certainly can’t step in to deal with all financial crime which other agencies across the country don’t pursue. 

"The scale of the challenge calls for concerted action from everyone involved, pooling our resources and expertise to maximise impact."

rachel.mortimer@ft.com 

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