The Financial Conduct Authority (FCA) is taking a stronger stance against misleading adverts that encourage people to invest in riskier products, but the new rules will not apply to crypto promotions.
Under the stronger rules, firms approving and issuing marketing must have appropriate expertise, and firms marketing some types of high-risk investments will need to conduct better checks to ensure consumers and their investments are well matched.
Firms also need to use clearer and more prominent risk warnings and certain incentives to invest, such as ‘refer a friend bonuses’, are now banned.
The financial watchdog wants to cut the number of people who are investing in high-risk products without understanding the risks involved.
“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,” Sarah Pritchard, executive director for markets at the FCA, said.
“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,” she added.
But no action is happening when it comes to crypto promotions as the FCA is waiting on the rules of engagement.
The regulator said that once the government and parliament confirms in legislation how crypto marketing will be brought into the FCA's remit, it will publish final rules on the promotion of qualifying crypto-assets.
“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 crypto-assets,” the FCA said.
In the year to the end of last July, 4226 adverts were amended or withdrawn after intervention from the FCA.
“With a sharp focus on understanding consumer behaviour, the FCA are introducing pragmatic rule changes to clamp down on retail investors buying high risk investments. The attention has rightly been placed on improving consumer understanding at the point of their decision making. Their thinking also extends to the newly launched Long Term Asset Funds which allow opportunities to access otherwise hard to reach investment opportunities," Nathan Long, senior analyst at Hargreaves Lansdown, said.
"The FCA’s proposals for LTAFs use consumer tested risk warnings, knowledge and experience checks and limits for those buying LTAFs to 10% of their portfolio. All in all, this is a thoroughly sensible set of measures and strikes the right balance between reducing detriment and providing investment opportunity. The obvious next step having clamped down on selling of higher risk investments is to free up the rules to better help firms explain mainstream investments to would be investors.”
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