FCA urges firms to get on board with consumer investments strategy

Speaking at the Association of British Insurers’ annual conference yesterday (February 22), Sarah Pritchard, executive director of supervision, policy and competition – markets at the FCA, discussed the FCA’s ongoing work and highlighted how the pandemic hit many people’s income and saw an increase in vulnerability.

She said: “It's really important to recognise the impact that the pandemic and the prolonged pandemic and other economic changes have had on consumers' financial resilience.”

The FCA’s survey last year found the number of vulnerable adults in the UK reached almost 28mn in 2020. 

Between March and October 2020, the number of adults with characteristics of vulnerability increased by 3.7mn to 27.7mn, a 15 per cent increase on the number identified in February 2020 before the first wave of the pandemic hit the UK.

Discussing these figures, Pritchard said when the pandemic initially hit, it saw a third of individuals use their savings to cover day to day expenses.

“Among those hardest hit were the self-employed who were already definitely less engaged with long term savings, such as pension products and the need to make more accurate decisions saving into a pension, compared to those who benefit from auto enrolment,” she said.

Pritchard explained that the consumer investments strategy can help with this, arguing that it is quite a new plan for the FCA because it is very specific in terms of outcomes that it is seeking.

The strategy, published in September 2021, highlighted ways in which it will tackle investment harm and improve the advice market, including the cost of regulation.

As part of the strategy, the FCA said it will gradually reduce the Financial Services Compensation Scheme levy, which advisers have seen soar in recent years, as well as tackle rising professional indemnity insurance costs.

It also revealed it will increase its scrutiny of principal firms, especially with regards to their oversight of their appointed representatives.

Pritchard said: “I'd encourage you to take a look at it because this is related to working with industry and cognitive mechanisms. As part of that strategy, as well as reducing the amount of money lost to scams, we said that we want to reduce the number of consumers who have a low risk appetite investing in high risk investments, but also reduce the number of consumers who have a higher risk appetite on having over £10,000 pounds investable assets in cash.

“We are wanting to create confident consumers who understand the level of risk that their investments offer and under those two headings, we've got a number of activities planned up to 2025.

“[One of them is that we are] targeting a 20 percent reduction in the number of consumers holding £10,000 of cash by 2025.”

She said part of this work is the FCA’s InvestSmart campaign, which launched in October and has content running across Tik Tok and Instagram.

“The primary focus is to target young people with the tagline of ‘Pause, do your research and don't get played’. We're deliberately trying to reach a younger audience where we're concerned about that disconnect between levels of understanding of risk.

“It is a multi-year £11mn campaign where we won't necessarily get everything right on day one, but I'm really keen that we track how we can improve that communication, engagement and outreach.”

The secondary element to this is around financial promotions, which the FCA launched a consultation on last month proposing a number of measures to address concerns about the ease and speed with which people can make high-risk investments.

At the time, the regulator said it was preparing for “a significant strengthening of its rules” on how high-risk financial products are marketed to prevent consumers from accessing investments they do not understand.

Pritchard said: “We welcome views and engagement through that consultation period. We're looking at introducing behavioural frictions and looking at strengthening standards for people that communicate or approve financial promotions to create a more robust version which is fit for purpose. 

“One of the proposals on consideration, which again will be subject to the future consultation, will be the possibility of a guidance sales regime for stocks and shares ISAs using some of the learnings that we have had from the introduction of investment pathways in pensions, which was introduced in February 2021."

sonia.rach@ft.com

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