The chair of the City regulator has said that more regulation may be needed to protect retail investors against high-risk products.
Speaking at a virtual roundtable hosted by UK Finance, Charles Randell said ordinary retail consumers are sometimes offered “a bewildering array of products, some of which are likely to be unsuitable for them”.
He suggested there may need to be changes in the Financial Conduct Authority’s (FCA) regulatory perimeter, in particular to restrict the availability of high-risk products to everyday investors.
“FCA authorised firms should not be facilitating the offering of high-risk products to ordinary retail consumers who cannot afford the risk of loss,” he said.
“That’s why we have banned the marketing of speculative mini-bonds.
“But I believe that the regulation of authorised firms in this area is still not where it needs to be for the future. And in addition to stamping out these behaviours by FCA authorised firms, we also need better tools to stamp out the marketing of scams online by unauthorised firms.”
Randell highlighted the search engine Google’s role in protecting investors.
“It is frankly absurd that the FCA is paying hundreds of thousands of pounds to Google to warn consumers against investment advertisements from which Google is already receiving millions in revenue,” he added.
“We will be saying more about the issue of high risk investments in the near future.”
The Financial Services Compensation Scheme (FSCS) also came under scrutiny in Randell’s speech.
“The FSCS compensation costs levy is already at an unacceptable level; and I am sorry to say that it is likely to increase, as some firms will fail during this crisis,” he said.
“We need a framework to stop social media platforms and search engines from promoting unsuitable investments, including scams, to ordinary retail consumers.”
Randell expressed concern that the protection of FSCS meant that irresponsible firms may not have to compensate investors themselves.
“All too often, the polluter doesn’t pay,” he said.
“The cost of bad behaviour by firms which then fail is usually mutualised through the FSCS, rather than borne by the wrongdoers.”