Hot on the heels of the latest news about the regulation of cryptocurrency advertising, the FCA has announced (18th January 21) that it will be launching a consultation paper to strengthen the rules around the promotion of high-risk investments. This is part of the FCA’s wider Consumer Investments Strategy, which was published in September 2021. Some of the proposed changes are the most radical the industry has seen for a long time and include proposals to:
- Include harder hitting risk warnings along the lines of “Don’t invest unless you’re prepared to lose all your money invested. This is a high‑risk investment. You could lose all the money you invest and are unlikely to be protected if something goes wrong. Take 2min to learn more.”
- These new warnings to apply to all ‘Restricted Mass Market Investments’ and ‘Non‑Mass Market Investments’ which will include cryptocurrencies. But also, other investments and financial services like per to peer lending, crowdfunding, illiquid investment and other non-mainstream investments.
- To require customers to watch educational videos before making certain investments, including possibly completing a test or questionnaire to make sure that they have understood the risks.
- The only exceptions will be high net worth and those designated as sophisticated investors which excludes the majority of people.
- Introducing a new set of risk-based questions that advisers need to discuss with clients which will determine eligibility. With extra controls put in place to avoid the risks of “coaching”.
- New rules to ban any kind of incentive to make an investment such as a refer a friend bonus or payment, or new customer bonuses.
- The introduction of cooling off periods for high-risk investments.
- Tightening the rules and controls over regulated individuals who are authorised to approve financial promotions, especially unregulated and high-risk investments. To create more individual accountability.
The FCA acknowledges that these are far reaching proposals and ones which will have an impact on firms in terms of increasing the costs of regulation and control, but they are making no apologies for it. At the moment this is a consultation and responses are invited from Financial Advisers until the end of March after which the final proposals will be announced.
We would very much support new rules to tighten the advertising and promotion of high-risk investments, it makes absolute sense to protect customers interests.
The Treasury continues to weigh in as well. It is proposing that legislation should be introduced to ensure that online operators are obliged to compensate victims of fraud where the advertising originated on their platforms. This has been proposed since 2019, but with the extra proposals gaining traction, this might be added to the new rules. Most commentators believe that this would be the measure which changed the market the quickest by hitting the operators in the pocket.
Just today (10th February) the FCA has announced that it has ordered online platform Freetrade to take down a number of its posts on social media sites. These mainly relate to stories linked to online influencers working for Freetrade. The concern was that the influencer was suggesting that you could solve debt issues through investment – which is absolutely against the rules. It another good sign that something is being done and that the FCA is alive to advertising beyond the traditional sphere.