High Risk Investment Advertising Crackdown

The Financial Conduct Authority (FCA) has published a discussion paper setting out tougher measures to strengthen financial promotion rules (advertising) against individuals who use loopholes to promote high-risk investments.

The paper will focus on 3 areas and the proposals are aimed to help retail investors make better decisions and follows feedback and a call for input on consumer investments.

The 3 areas being:

• The classification of high-risk investments
• The segmentation of the High-risk investment market
• The responsibilities of firms approving financial promotions

The FCA needs to find the correct balance between consumer protection and responsibility for their own actions whilst identifying any unintended consequences of the changes before the consultation on rule changes later this year.

Sheldon Mills the FCA’s executive director, consumers and competition said: “We are clear on wanting to deliver a consumer investment market which will work well for the millions of people who stand to benefit, our concerns are that too often consumers are investing in high-risk investments which they do not understand and could lead to significant and unexpected losses”.

Mills added: “We have already banned the mass-marketing of speculative mini-bonds and through our ongoing supervisory and enforcement actions we will continue to address the harm in this market.  Latest proposals will reduce further risk of people taking on inappropriate high-risk investments that do not meet their needs”.

Facebook and Google have both been under fire for hosting scammers advertising on their platforms and the FCA has warned that social media giants are acting too slowly when it comes to curbing online scams.

Recent research by the FCA found 45% of investors did not consider “losing some money” as a potential risk of investing.

Caroline Dineage, Minister of State for Digital and Culture revealed last week that the government will consult later this year on online fraud measures.  The announcement came after many industry coomentators urged the Government to include online investment scams in the Online Harms Bill currently passing through the House of Commons.

The FCA has requested feedback on the current paper before 1^st July 2021.

Comment

The FCA’s proposals are welcome.   We agree that the discussion paper shows the FCA is serious about reducing consumer harm by addressing the drivers proactively before it is allowed to develop in the advertising market.  That said, we suggest more legal powers to prosecute are required to prevent unregulated firms advertising high risk, limited protection products that may cause serious financial detriment.  The reality is that the FCA has no power over online/internet based promotions from anywhere on the planet and by making it is criminal act in the UK, powers would be gained to prosecute perpertrators anywhere in the world marketing to UK residents and then and extradite people for prosecution, much in the same way the USA does.