FCA accused of “missing the point” on financial promotions
The City watchdog has been accused of “missing the point” on financial promotions for high-risk investments, including peer-to-peer lending platforms.
Ian Anderson, co-founder and chief operating officer at ArchOver, said education is needed for investors rather than “simply sticking plasters on marketing”.
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In January, the Financial Conduct Authority’s (FCA) published its consultation on strengthening financial promotions for high-risk investments. The regulator said it is planning to ban the promotion of investor incentives, such as new joiner or refer-a-friend bonuses. It also said it will improve risk warnings on ads and has outlined plans to strengthen appropriateness tests, for example by removing the ease of retakes.
Anderson cited part of the paper in which the FCA said that even a good financial promotion may not be enough to adequately protect customers from high-risk investments, so financial promotion rules provide them with further protection.
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“One of the main ways consumers build their understanding of the risks and regulatory protection for investments is through the information they get in financial promotions,” the FCA said in the paper.
“For high‑risk investments, even a good financial promotion may not be enough to adequately protect consumers.
“It may meet our requirements to be clear, fair and not misleading, but a consumer may still not understand when the underlying investment does not meet their needs. In these cases, we can use our financial promotion rules to give consumers further protections.”
“The FCA is still missing the point,” Anderson said in a LinkedIn post.
“The only real way to protect investors is to make sure they are educated in financial investments, not simply put sticking plasters on marketing.”
“I’ve always had issue with the fact that if the FCA really wanted to protect investors, they should be working with government to provide education,” he added to Peer2Peer Finance News.
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Andrew Holgate, chief executive at Equitivo Advisory and managing director, head of Europe at Finitive, said when P2P platforms have failed in the past it has not been due to financial promotions but better FCA diligence could have stopped some of the decisions individuals running the collapsed platforms made.
“The FCA are in a difficult place here,” Holgate said on LinkedIn.
“Their rules didn’t stop Lendy, FundingSecure, London Capital & Finance, Collateral and so on. But that was nothing to do with investors not knowing the risks on financial promotions. The financial promotion rules were adhered to.
“What is becoming apparent is that individuals may have lied about the risks or their operations. The FCA is taking action on certain individuals about this.
“What might have stopped them is better diligence of the platforms. The FCA’s job is to make sure what people say is happening is what actually happens in the business. They should spot the fraudsters.
“It feels like they are making it harder for investors to invest so that the FCA don’t have to go and diligence the platforms themselves…perhaps because they are under resourced?”
Meanwhile, P2P lending platforms have praised the FCA for shelving a proposed ban on the marketing of P2P property development loans for the time being.
The FCA is inviting feedback on its proposals by 23 March and intends to confirm its final rules in the summer.