FCA bans ‘refer a friend’ in new high-risk marketing rules
“We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.”
The Financial Conduct Authority (FCA), UK’s financial watchdog, has announced a new set of rules aimed at curbing misleading adverts that promote investing in high-risk products among retail consumers.
The stronger rules are being made effective after the FCA found 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 findings led to the regulator’s Consumer Investments Strategy to include the goal of reducing the number of people who are investing in high-risk products that do not reflect their risk appetite.
The ongoing successful campaign against misleading marketing has resulted in 4226 adverts being amended or withdrawn after intervention from the FCA, in the year to the end of July 2022.
New rules do not apply to crypto yet
Sarah Pritchard, Executive Director, Markets at FCA said: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk. Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act.
“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”, the FCA executive director added.
Under the new rules, firms marketing some types of high-risk investments will need to use clearer and more prominent risk warnings. Certain incentives to invest, such as ‘refer a friend bonuses’, are now banned. In addition, firms will need to conduct better checks to ensure consumers and their investments are well matched.
As to the crypto industry, the FCA will publish final rules on the promotion of qualifying cryptoassets, once the Government and Parliament confirms in legislation how crypto marketing will be brought into the FCA’s remit.
So, while these new rules do not apply to crypto yet, the FCA expects rules governing crypto promotions are likely to follow the same approach as those for other high-risk investments.
Crypto has become one of the main areas of concern at the FCA because of how popular the asset class is among retail users despite being so high risk. The FCA warns that people need to be prepared to lose all their money if they choose to invest in cryptoassets.
FCA to approve Long Term Asset Funds for retail investors
The financial watchdog took the opportunity to launch a consultation with the intention of bringing Long Term Asset Funds (LTAFs) to a wider group of retail investors and schemes.
The FCA inviting feedback on regarding access to non‑traditional investments, which consumers might use to diversify their portfolio and for potentially higher returns, while still offering strong consumer protection. Market participants should send feedback on this by 10th October 2022. Final rules on LTAFs should be confirmed early next year.