The FCA’s plan to tackle investment harm

On 15 September 2021, the FCA published the Consumer Investments: Strategy and feedback Statement, giving more detail on its plans to tackle investment harm. The purpose of the strategy is to provide consumers with the confidence to invest, supported by high quality, affordable advice market, which should lead to fewer people being scammed or persuaded to invest in products too risky for their needs. This reinforces the FCA’s key message that investment harm is an important area and growing risk. This month’s insight summarises the Statement’s key points, including the types of enforcement and contentious supervisory interventions we may see going forward. 

By 2025, the FCA plans to:

  • Reduce by 20% the number of consumers who could benefit from investment earnings but are missing out. Nearly 8.6 million consumers hold more than £10,000 of investible assets in cash.
  • Halve the number of consumers investing in higher-risk products not aligned to their needs. 6% of consumers increased their holdings of higher-risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.
  • Reduce consumers’ losses to investment scams committed or facilitated by regulated firms. Consumers lost about £570 million to investment fraud in 2020/21.
  • Stabilise the £833m compensation bill for the Financial Services Compensation Scheme and target a year-on-year reduction in the Life Distribution and Investment Intermediation funding classes from 2025 to 2030.

To achieve this, the FCA is setting out a package of measures that include:

  • Implementing the consumer duty initiative
  • Strengthening the financial promotions regime in 3 areas – the classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions.
  • Launching a new £11m investment harm campaign to help consumers make better-informed investment decisions and reduce the number of people investing in inappropriate high-risk investments.
  • Detecting and challenging firms who take on Appointed Representatives and broader reforms to the Appointed Representatives regime.
  • Making regulatory changes to enable firms to provide more sales and support services to mass-market consumers investing in straightforward products like stocks and shares ISA wrappers.

In a consumer investments data review covering 1 April 2020 to 31 March, 2021 the FCA outlines the enforcement and supervisory interventions it has conducted to tackle harm. These include:

  • Stopped 48 new firms from entering the market where the FCA identified potential for consumer harm.
  • Opened over 1,700 supervisory cases involving scams or higher risk investments and 31 live investigations or proceedings relating to the conduct of regulated firms.
  • Published over 1,300 consumer alerts about unauthorised firms and individuals.
  • Took down websites, took civil action to stop activity, freeze assets, and launch insolvency proceedings or criminal prosecutions where fraud is suspected.  
  • Adopted a “use it or lose it” approach to firms’ permissions, including expediting the process to remove unused permissions on the FCA’s initiative.
  • The FCA also stated that it has several ongoing criminal investigations in which it expects to bring charges before the end of 2021.

We anticipate this area, in general, for firms to focus on and prioritise, particularly to apply risk mitigation efforts. 


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