FCA places restrictions on twice as many consumer investment firms this year

by | Oct 18, 2022

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The FCA has placed restrictions on twice as many firms in the investment market compared to last year, as part of its strategy designed to prevent harm in the consumer investment market. 

The restrictions include preventing firms from promoting and selling certain products or providing specific services like advice on defined benefit pension transfers.

The FCA stopped 17 firms and seven individuals attempting to obtain a new FCA authorisation in the investment market where phoenixing or lifeboating was suspected. This is where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to or setting up a new firm.

The FCA also stopped the UK operations of 16 Contracts for Difference providers, that had entered the UK’s temporary permissions regime in 2021, where suspected scam activity was detected, or consumers were encouraged to trade excessively to generate revenue. Without FCA action consumers could have lost around £100m a year.

The work forms part of the FCA’s updated Consumer Investments strategy, which is aimed at helping people invest with confidence, while seeking to reduce the number of people who are persuaded to invest in products that are too risky for their needs and to slow the growth in investment scams.

The actions the FCA is taking to prevent harm in the consumer investment market are aligned to key commitments in its wider three-year strategy, including enabling consumers to help themselves, dealing with problem firms and reducing and preventing financial crime.

Sarah Pritchard, Executive Director of Markets at the FCA, said: “We want to see a consumer investment market where consumers can invest with confidence, understanding the level of risk they are taking, and where assertive action is taken when harm is identified. We know that it will take time to see the full impact of all our interventions, particularly given the worsening economic environment, but have committed to update each year on the progress that is being made.

“In the last year we have maintained our focus on acting assertively and innovatively to tackle harm – we prevented 1 in 5 firms from entering the Consumer Investments market and we have taken action against unauthorised firms with a 40% increase in the number of consumer alerts issued. Setting high standards and acting quickly to crack down on problem firms will help ensure market and consumer confidence, supporting the integrity and growth of UK financial services.”

As well as acting more assertively to crack down on firms that are not meeting the FCA’s expectations, today’s update shows that the FCA is:

  • being tough at the Authorisations gateway to prevent firms that could cause harm from entering the market. One-in-five applications from firms wanting to join the consumer investment market in 2021/22 were not approved or were withdrawn
  • issuing more consumer alerts to warn consumers of risks. The FCA published over 1,800 consumer alerts about unauthorised firms or individuals last year, 40% more than the previous year
  • stepping up its ScamSmart and InvestSmart campaigns to reach millions of consumers. 59% more consumers used the FCA’s online ScamSmart resources last year to help them avoid scams
  • being more innovative in using data to tackle online fraud faster, including by scanning 100,000 websites every day and acting where a scam is suspected

Over the last year, the FCA has introduced new rules to protect consumers from harm, including strengthening financial promotions rules and introducing the Consumer Duty, and has consulted on proposals for a compensation scheme for former members of the British Steel Pension Scheme who received unsuitable advice. It will also consult later this year on a more proportionate advice regime for investing in stocks and shares ISAs and following that the FCA intends to conduct a holistic review of the boundary between advice and guidance.

As part of its commitment to be a more outcomes focussed regulator, the FCA set four targets for the consumer investments strategy to achieve. While three of the four outcomes have declined, the FCA was clear when it launched the strategy that it will take time to embed changes and see the impact of these. The metrics are also impacted by external factors, including the deteriorating economic environment which can lead to an increase in scams and people investing in high-risk investments which may not be right for them. Once the strategy is fully implemented the FCA expects the outcome measures to improve.

The FCA will continue to review the consumer investments strategy and bolster this work where growing harm to consumers is identified.

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