Consumer Investments: Strategy and Feedback Statement
The FCA have recently released details around their consumer investments strategy, which is aimed at ensuring all consumers can invest their money with confidence. The FCA aim to provide confidence to investors by helping them to understand the risks associated with investing and what regulatory protections are in place to safeguard them.
The Regulator is placing an emphasis on consumers investing in the right products that match their circumstances and attitude to risk (PROD). Retail customers need to have access to the advice/support they need, only access higher risk investments knowingly and are protected from scams.
So, what actions are the FCA taking?
There is concern that consumers who could gain from investing, are currently holding their savings in cash and are consequently at risk of having their purchasing power eroded by inflation. By 2025, the number of consumers with a higher risk tolerance holding of over £10,000 in cash will be reduced by 20%. The FCA plan to address this by;
- Consumer duty – Setting clearer and higher expectations for the firm’s standards of care towards consumers.
- Firm Support – The FCA will work with firms to help them understand and use the flexibility offered by the existing regulatory framework.
- Consumer Journey – Consumers may remain in poor-performing products chosen by employers that are susceptible to scams.
- Vulnerability guidance – working with firms to improve the way they treat vulnerable customers so that they experience good outcomes.
- A new approach to consumer engagement – Alongside a new investment harms campaign, the FCA will explore how best to engage and empower consumers directly; helping them to understand which protections apply to financial products.
The aim is to have a 50% reduction in consumers invested in high-risk investments with a low-risk tolerance or demonstrate vulnerability characteristics by 2025. The FCA plan to address this by;
- The use of data and technology to spot harm faster.
- Investment harm campaign to help consumers make better-informed investment decisions.
- Tackling out-of-date permissions by continuing the ‘use it or lose it’ approach.
- Marketing restrictions by being more proactive in restricting the marketing of high-risk investments where the FCA can see harm.
Scams & Fraud:
The FCA will seek to reduce the amount of money consumers lose to investment scams, through reductions in investment scams perpetrated or facilitated by regulated firms. This will be addressed by:
- The role of technology platforms as facilitators to spreading promotions and adverts which expose consumers to significant risk. The FCA will be looking at the operations of major online platforms to determine if they are compliant as a result of the end of the Brexit Implementation Period where the financial promotion restriction available to online platforms has now ended.
- Delivering the FCAs counter-fraud approach.
As a result of the PII market hardening, firms have been struggling to meet their liabilities which have then subsequently been passed to the FSCS. The FCA will be acting to stabilise the Life Distribution & Investment Intermediation and investment provision funding classes by 2025, with a year-on-year reduction of 10% in these classes from 2025-2030.
The FCA plan on reducing this bill by addressing poor advice, strengthening capital standards, and reviewing FSCS funding.
Other key take-home points…
The FCA will be addressing the misuse of the Appointed Representatives regime. Principal firms are responsible for more complaints and redress than non-principal firms. The FCA will be consulting on changes to rules and will clarify the expectations of principals ensuring that the FCA can challenge principal firms on the activities of their ARs.
The FCA are continuing to monitor changes to the PII market. They are looking to create conditions for firms to demonstrate that they have given good advice and can secure PII that is appropriately priced, potentially through third-party audits.
In a bid to get a larger percentage of the population investing their money, the FCA will consider making regulatory changes to enable firms to provide more sales and support services to mass-market consumers investing in straightforward products likes stocks and shares, and ISA wrappers.
The clear direction of travel from the language used here and in previous communications around Consumer Duty is for firms to be able to demonstrate both from a risk and value perspective that their clients are invested in Products that match their needs, risk tolerances and knowledge and experience. It is also clear that firms will need to be able to demonstrate value for money in the services they offer, which has always been a grey area for many. We will continue to monitor this area and will feedback our thoughts on how firms can ensure they are prepared and are pro-active in their approach, v’s being reactive should the landscape change.