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New rules for high risk investment ads

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Written by: Emma Lunn
19/01/2022
The Financial Conduct Authority (FCA) is clamping down on the promotion of high risk investments.

The regulator said it was acting to address concerns about the ease and speed with which people can make high risk investments which might not be right for them.

Under the proposed rules, the FCA would ensure firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered, improve risk warnings on ads and ban incentives to invest, for example new joiner or refer-a-friend bonuses.

Those looking to make certain high risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks.

The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the government bringing the promotion of these high-risk investments under the FCA’s remit.

When it does, the FCA plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors.

Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading.

The FCA is inviting feedback on its proposals by 23 March 2022.

Sarah Pritchard, executive director of markets at the FCA, said: “Too many people are being led to invest in products they don’t understand and which are too risky for them. People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investment strategy.”

Laura Suter, head of personal finance at AJ Bell, said: “There has been a boom in people investing during the pandemic, and in turn there has also been a steep rise in the number of newcomer investors putting their money in high-risk, inappropriate investments. The FCA wants to curb this trend and make it harder for novice investors to sleepwalk into buying high-risk investments. The regulator plans to tighten the rules on some investments, like mini-bonds, peer-to-peer and certain crowdfunding, so that investors can’t just buy them with a few clicks of the mouse.

“Hot on the heels of the announcement by the Treasury yesterday that rules around cryptocurrency advertising will be made stricter, the regulator also plans to bring in more rules on advertising high-risk investments. Firms will no longer be able to offer refer-a-friend offers or free money to encourage people to invest, and the risk warnings on adverts will also be strengthened.

“The regulator admits that it won’t be able to stop every low-risk or vulnerable customer from buying inappropriate investments. Instead, in the next three years, the FCA’s aim is to halve the number of people investing in high-risk assets who have a low risk tolerance or who are vulnerable.”

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