The Financial Conduct Authority (FCA) has published proposals to strengthen its financial promotion rules for high-risk investments, including peer-to-peer lending.
Following feedback to its call for input (CFI) on consumer investments, the regulator has published a discussion paper seeking views on three areas with the aim of better protecting retail customers.
The three areas are: the classification of high-risk investments; further segmenting the high-risk investments market; and the approval of financial promotions.
Within the classification of high-risk investments, the FCA is seeking views on whether more types of investments should be subject to marketing restrictions and what marketing restrictions should apply.
In addition, the FCA is planning to strengthen its rules to further segment high-risk investments from other investments and is seeking views on how best to achieve this.
The regulator said this is because it is still is seeing too many consumers investing in inappropriate high-risk investments which do not meet their needs.
The FCA is also considering what improvements could be made to risk warnings, which are often perceived as white noise to many investors and often do not convey the genuine possibility of an investment loss, and whether firms should make investors watch educational videos before investing.
Furthermore, the FCA is seeking views on whether there should be more requirements for these firms to monitor a financial promotion on an ongoing basis to ensure it remains clear, fair and not misleading.
Read more: How the FCA is tackling consumer investments
“We have been clear that we want to deliver a consumer investment market that works well for the millions of people who stand to benefit from it,” said Sheldon Mills, executive director, consumers and competition at the FCA.
“We are concerned that too often consumers are investing in high-risk investments they don’t understand and can lead to significant and unexpected losses.
“We have already taken action by banning the mass-marketing of speculative mini-bonds. We continue to address harm in this market through our ongoing supervisory and enforcement action but recognise more needs to be done.”
The FCA is inviting feedback on its discussion paper until 1 July 2021.
The regulator said it will consider the feedback received alongside further analysis and testing, and intends to consult on rule changes later this year.
The FCA will publish a full response to its CFI on consumer investments, alongside the next steps on its wider consumer investments strategy, later in the year.
Simon Morris, a financial services partner with law firm CMS, said without new legislation the changes will make little difference.
“Regulating financial promotions is a real problem for the FCA,” he said.
“Operating within a complex and constraining statutory framework and stung by criticism over its mishandling of London Capital & Finance advertising rule breaches, this discussion paper offers only a fractional solution to a far wider issue.
“The FCA proposes rule changes – more risk warnings, marketing bans and possibly online tests before you can invest in high-risk products.
“But this will only make limited difference unless a great many more things happen. These mainly require legislation, and it is a shame that the FCA has not flagged this more clearly.”