FINANCIAL Conduct Authority (FCA) chief executive Andrew Bailey has highlighted the regulator’s actions to protect everyday investors and said that risk taking is an unavoidable element of investing.
In a speech at the Lord Mayor’s City Banquet at Mansion House, Bailey noted concerns regarding the balance of risk taking and consumer protection and where the regulator should intervene.
He also noted “a major shift in risk taking away from banks towards non-banks” over the past decade, giving the public more direct exposure to asset values, but called for more transparency in the risks of non-bank investments.
“Amongst the perceived problems there are so-called investments that are fraudulent, ones that are genuine but missold to the particular investor, others that look misjudged at the time of purchase if not missold, and others that were reasonable at the time of purchase but turn out to be poor value,” he said. “We see all of these.
“The regulatory actions are different. For some we have used product bans as well as enforcement, elsewhere we have limited retail investment as a share of an investor’s net financial assets, for others we have or are proposing rule changes, and in some cases we propose no action because no action is the right approach.”
Incoming rule changes for the peer-to-peer lending sector include restricting retail investors to putting 10 per cent of their portfolio into P2P loans.
“But, and contrary to the implication of some commentary on what the FCA should do that I read, we want to foster an environment in which risk taking occurs,” Bailey added. “Part of our role is to facilitate investment in the economy to support jobs and the livelihoods of people in this country. Innovation and start-ups are an important part of that activity.”
Bailey went on to say that “investing is inherently risky” but underlined that the public needs “clear meaningful disclosure on the risks they are taking”.
He called for more transparency in the risks of non-bank investing and said there are some circumstances in which the regulator imposes limits on investment or outright bans.
“At the FCA we are very alive to the challenge of balancing suitable investor protection and supporting the economy,” he concluded. “We will always seek to act to strike this balance and in doing so we may rarely appear popular, but it is a balance that has to be struck.”
Bailey’s comments come at a time of increased scrutiny of the regulator and its efforts to protect retail investors, in the wake of a number of high-profile investment firm collapses. Neil Woodford’s recent fund closures have left hundreds of thousands of investors unsure about whether they will be able to recover their funds. Other investment firms to shut down this year include peer-to-peer lenders FundingSecure and Lendy, as well as mini-bond provider London Capital & Finance.