The UK financial regulator has admitted that the rules on selling investments need to change to restore consumers’ faith, after years of “too many scams and scandals”.
In a request for ideas on improving the way savings products and advice are provided, the Financial Conduct Authority asked for input on several processes that have contributed to recent high-profile losses.
These included “the regulation of financial promotions . . . to make it easier for people to understand the level of regulatory protections afforded to them”, which critics have said needs to be addressed after thousands of investors lost £236m in the collapsed mini-bond issuer London Capital & Finance, having wrongly assumed they were protected.
Another area where more work may be needed is ensuring investors “understand the risk they are taking”, which many of the 300,000 who lost money in the Woodford Equity Income Fund last year say they were unable to do.
According to the FCA’s call for input, there is a need to reshape the whole future of consumer investments, “including regulation, to ensure consumers can have faith in the market”.
Interim chief executive, Chris Woolard, said: “’The consumer investment market is not working as well as it should. There have been too many scams and scandals and too often consumers are offered unsuitable products or advice.”
Campaign groups have repeatedly accused the regulator of failing to stop investors suffering financial harm, or provide adequate redress for victims.
Earlier this year, the one-time Brexit activist Gina Miller tried to block the appointment of former FCA boss Andrew Bailey as Bank of England governor because of the “litany of financial scandals” during his time at the regulator.
Proposed limits to the compensation payable under the FCA’s complaints scheme, which could cap redress at £10,000, are currently being opposed by the campaigning groups Transparency Task Force and the Connaught Action Group, which say the amount is too low.
However, the FCA acknowledgment of the need for change was welcomed by investment platforms Hargreaves Lansdown — through which many invested in the Woodford fund.
“The purpose of the regulator’s wide-ranging call for input is clear: they’re trying to ensure people can better navigate financial services to invest for the future, getting the help that’s right for them,” said Hargreaves’ head of policy Nathan Long.
“The FCA’s right to flag that it can’t stop all scams. If the level of guidance and . . . information improves, people’s own resilience to scams will grow as their ability to spot when something is simply too good to be true,” he added.
Anthony Morrow, co-founder of financial advisory OpenMoney, said the FCA’s call for input was appreciated, especially as the pandemic has increased the number of reported financial scams. “We must stop blaming individuals for buying too complex or risky products, and start simplifying the products we offer . . . so investors can make better informed financial decisions,” he said.
Reducing harm in the consumer investments market was made a priority by FCA in its 2020/21 business plan, published in April. It is also working on a new consumer initiative to help investors make better-informed decisions, building on the ScamSmart campaign started in 2014.
The new campaign will seek to highlight the harm that can be caused by investing in high risk, high return, illiquid investments that are not suited to investors’ financial needs.
Consumers wishing to respond to the call for input have been asked to send their comments via a form on the FCA website by December 15. All feedback will be used to plan the agency’s work over the next three years.