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UK FCA to strengthen rules on how high-risk financial products are marketed

posted onJanuary 19, 2022
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The UK Financial Conduct Authority (FCA) is acting to address concerns about the ease and speed with which people can make high-risk investments by proposing a significant strengthening of  financial promotions rules to protect consumers.

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. 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.

"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 investments strategy" Sarah Pritchard, Executive Director of Markets at the FCA, said.

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. It will consider all feedback before determining its final rules and, subject to the responses received, intends to confirm its final rules in summer 2022.

Furthermore, the UK regulator, confirmed last week it would probe market data suppliers on anti-competition claims.

In a market study to begin this summer, the FCA will look “into concerns that complex contracts for benchmarks and indices prevent switching to cheaper, better quality or more innovative alternative providers.” Benchmarks and indices are used by market participants like asset managers, banks and clearing houses to track and evaluate asset prices and investment performance.

By the end of the year, the FCA will also launch a second market study to assess adding costs to investors and limiting new market entrants. Access to high-quality credit ratings helps investment managers assess financial risk, influencing which investments they make.

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