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FCA tightening rules around high-risk investments

by LLB Reporter
19th Jan 22 11:42 am

The FCA today announced plans to tighten the rules around high-risk investments.

The FCA said: “A key part of the strategy is addressing the harm from consumers investing in high‑risk investments that do not match their risk tolerance. This can lead to unexpected and significant losses for consumers and undermine wider confidence in investments, making it harder for all firms to raise capital. We do not want to unnecessarily restrict consumers who want to invest, but we want them to be able to access and identify investments that suit their circumstances and attitude to risk.”

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.

“Research from the FCA shows the wide education gap that exists with new investors, with almost half of self-directed investors not realising they can lose money by investing. In particular it found that younger people are more likely to buy high-risk investments, and are the group less likely to have money to fall back on if their investments did plummet in value.

“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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