The Financial Conduct Authority (FCA) has finalised stronger rules to help tackle misleading adverts that encourage investing in high-risk products. 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. As part of its Consumer Investments Strategy, the FCA want to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite.
This follows concerns that a significant number of people who invest in high-risk products do not view losing money as a risk of investing and invest without understanding the risks involved. These new rules build upon the FCA’s more assertive and interventionist approach to tackling poor financial promotions, reducing the potential for unexpected consumer losses.
In the last year the FCA have intervened in significantly more financial promotions to prevent harm. In the year to the end of July 2022, 4226 adverts were amended or withdrawn after intervention from the FCA.
DOES NOT APPLY TO CRYPTO
Despite most sensible people regarding crypto and NFT investments as high risk, the FCA does not agree. The new rules will not apply to cryptoasset promotions. Once the Government and Parliament confirms in legislation how crypto marketing will be brought into the FCA’s remit, the FCA will publish final rules on the promotion of qualifying cryptoassets. These rules are likely to follow the same approach as those for other high-risk investments.
In a backtracking footnote, the FCA states; “Crypto remains high risk so people need to be prepared to lose all their money if they choose to invest in cryptoassets.” So why don’t the marketing rules apply then?
The FCA is inviting feedback on this by 10th October 2022 and will confirm its final rules early next year.