The Financial Conduct Authority (FCA) has proposed to force people to take an online test before they can invest in high risk assets, as part of a round up of ideas on curbing risks in the market.
In a discussion paper out this morning (April 29) the regulator said it was keen to prevent consumers from accessing high-risk investments that they do not understand.
The FCA is concerned that despite its existing marketing restrictions, too many consumers are still investing in inappropriate high-risk investments which do not meet their needs.
It proposed to further segment high-risk investments from other investments and to improve risk warnings, which, it said, were perceived as "white noise" by many investors.
Sheldon Mills, executive director, consumers and competition at the FCA, said: “We have been clear that we want to deliver a consumer investment market that works well for the millions of people who stand to benefit from it.
"We are concerned that too often consumers are investing in high-risk investments they don’t understand and can lead to significant and unexpected losses.
“We have already taken action by banning the mass-marketing of speculative mini-bonds. We continue to address harm in this market through our ongoing supervisory and enforcement action but recognise more needs to be done. Our latest proposals would further reduce the risk of people taking on inappropriate, high-risk investments that don’t meet their needs.”
Alongside tests and risk warnings the FCA has proposed requiring consumers to watch educational videos before they can invest, introduce deposit collection, and investment frictions such as cooling off periods or requiring text message confirmations before investments are made.
The FCA is also asking whether more types of investments should be subject to marketing restrictions, such as equity shares and peer-to-peer agreements, and what marketing restrictions should apply.
Furthermore, the FCA is seeking industry views on whether there should be more requirements for firms that approve financial promotions to monitor the promotion on an ongoing basis, to ensure it remains clear, fair and not misleading.
This involves 'section 21 approvers', who approve financial promotions for unauthorised people and check for compliance with the FCA’s rules. The regulator is looking to clarify the responsibilities of this position.
Recent research from the FCA showed the pandemic has accelerated the number of investors looking at high-risk opportunities, with around 6 per cent of adults with investments increasing their holdings of high-risk investments during the past year, despite an increase in consumer vulnerability.
The FCA wants to protect investors who are more likely to use online investment platforms to invest in high-risk investments due to a rise in online adverts and low cost or no fee online investment platforms.
Although the regulator has limited power over many issuers of high-risk investments (because they are often not carrying out a regulated activity when they issue an investment product), it can regulate how these investments are marketed.
The FCA is also asking for additional insight into the number of consumers who currently hold high-risk investments, the amount held and the type of investments held.