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Crack down on misleading high-risk investments ads

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01/08/2022
The City watchdog will clamp down on misleading adverts that encourage people to invest in high risk products. But the rules won’t apply to cryptoassets.

Stronger rules by the regulator, the Financial Conduct Authority (FCA) will require firms approving and issuing marketing material for high-risk investments to have “appropriate expertise”.

YourMoney.com has asked the FCA what it means by “appropriate expertise” and when the rules will come into effect– we’ll update this news story once we hear back.

It also said firms marketing some types of high-risk investments will need to conduct better checks to ensure customers and their investments are well matched.

Further, the FCA will require firms to use clearer and more prominent risk warnings, while certain incentives to invest such as ‘refer a friend bonuses’ are now banned.

High risk investments may offer investors a chance of higher returns, but they should be treated with caution, the FCA warned. Products such as cryptoassets, mini-bonds, structured products, land banking and contracts for differences may put investors’ money at higher risk. When things go well, they produce high returns, but when things go badly, investors could lose all their money.

During the pandemic (2020), 6% of adults (3.15 million) had money in high-risk investments and the FCA wants to see this number reduced by 50% by 2025

It comes following concerns that a significant number of people who invest in high-risk products do not view losing money as a risk of investing, and they tend to invest without understanding the risks involved.

In the past year, 4,226 adverts were amended or withdrawn following the FCA’s intervention.

However, the FCA confirmed the new rules will not apply to cryptoasset promotions. The FCA said once the government and parliament confirms in legislation how crypto marketing will be brought into the FCA’s remit, it will then publish final rules on the promotion of qualifying cryptoassets. It added that these rules are “likely to follow the same approach as those for other high-risk investments”.

“Crypto remains high risk so people need to be prepared to lose all their money if they choose to invest in cryptoassets”, the FCA said.

‘Invest with confidence’

Sarah Pritchard, executive director, markets at the FCA, said: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk. 

“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act. 

“This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”  

The FCA has also launched a consultation which could see Long Term Asset Funds (LTAFs) marketed to a wider group of retail investors and schemes in future. LTAFs are open-ended authorised funds  designed to invest efficiently in long-term, illiquid assets.

The proposals out for consideration would provide access to non‑traditional investments, which investors might use to diversify their portfolio and for potentially higher returns, while still offering strong consumer protection. The consultation closes on 10 October 2022, with final rules confirmed early next year. 

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