The FCA has released its policy statement on High-Risk Investments (PS22/10) which the FCA has framed in its press release as a 'clamp down on marketing' of such investments, which include many funds, venture capital investments and peer-to-peer lending.
However, many in the industry will be disappointed at how little the regulator updated its proposals following industry feedback on the practicalities and likely efficacy of some of the proposed rules.
The decisions are all now finalised and firms have until 1 February 2023 to implement the changes. The exception to this is the introduction of a new risk warning which has an earlier deadline of 1 December 2022.
Key changes that firms need to work on include:
new risk warnings are required, both standard and personalised versions
positive frictions, such as cooling off periods, are introduced
incentives to invest, such as ‘refer a friend bonuses’, are now banned
the expertise requirements of those approving and marketing products have been clarified
If you were familiar with the proposals from the consultation paper, here are some of the areas where the FCA has made changes:
the wording of risk warnings will be more flexible and where products are covered by FSCS firms will no longer need to imply that they are not within this.
the concept of a 'direct offer financial promotion', the trigger point for many rules, is clarified.
the 24-hour cooling off periods are still coming in but will run from the point the consumer requests to see a 'direct offer financial promotion', rather than at the first interaction.
a 24-hour window will also need to be in place before someone can resit an appropriateness test.
The FCA sees this as a key step in protecting consumers from investing without understanding the risks involved.
Sarah Pritchard, Executive Director, Markets at the FCA said
"This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky."