FCA Publishes New Strategy to Scams and High-Risk Products

September 15, 2021, | AtoZ MarketsThe UK Financial Conduct Authority (FCA) has announced a new strategy to control investment scams. Also, the watchdog plans to adopt several measures for instruments considered high-risk.

The consumer investments market accounts for £1.6 trillion held or invested by consumers through the services of over 6,000 wealth managers, advisors, and investment platforms. While most of this market meets consumers’ needs, there are some areas where harm is occurring.

Strategy Until 2025

  • Reduce by 20% the number of consumers who could benefit from investment earnings but are missing out. Nearly 8.6m consumers are holding more than £10,000 of investible assets in cash.
  • Halve the number of consumers who are investing in higher-risk products that are not aligned to their needs. 6% of consumers increased their holdings of higher-risk investments during the pandemic, with 45% of self-directed investors saying they did not realize the risks.
  • Reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms. Consumers lost nearly £570m to investment fraud in 2020/21 – this has tripled since 2018.
  • Stabilize the £833m compensation bill for the Financial Services Compensation Scheme, and target a year-on-year reduction in the Life Distribution and Investment Intermediation (LDII) funding classes from 2025 to 2030.

Sarah Pritchard, Executive Director of Markets at the FCA, said:

“Investors have never had more freedom – technology has democratized the market, new products have become available, and people have better access to their life savings than before. But that freedom comes with risk. We want to give consumers greater confidence to invest and to help them do so safely.”

So far, the FCA has used various strategies to:

  • Stopping 48 new firms from entering the market where the FCA identified potential for consumer harm (representing 1 in 5 applications) .
  • Opening over 1,700 supervisory cases involving scams or higher-risk investments .
  • Publishing over ​1,300 consumer alerts about unauthorized firms and individuals.

Higher Risk Investments

To achieve the mentioned targets, FCA has set out a package of measures including the launch of a new £11 million investment harm campaign, to reduce the number of people investing in inappropriate high-risk investments.

Higher risk investments include:

  • Mini-bonds (also known as high interest returning bonds) and other non-readily realizable securities
  • Unregulated collective investment schemes (UCIS)
  • Some structured products, derivatives, and Contracts for Difference (CFDs)
  • Venture Capital Trusts (VCTs)
  • Exchange tokens or cryptocurrencies (eg Bitcoin)
  • Investment-based crowdfunding
  • Peer-to-peer lending

FCA said they want to see a consumer investment market in which consumers can invest with confidence. Likewise, understanding the risks they are taking, and the regulatory protections provided.

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