Strengthening the Financial Promotion Rules for High Risk Investments

At the end of last month, the FCA released a discussion paper seeking views on changes to its financial promotions rules to address harm to consumers from investing in inappropriate high-risk investments.

Low interest rates have driven the search for higher returns resulting in more consumers being drawn into riskier investments. This is particularly problematic when research has shown that over four in ten (45%) of non-advised investors did not view ‘losing some money’ as a potential risk of investing.

One of the areas the FCA is considering changes to is risk warnings. There is a concern that many consumers ignore this information and see it as "white noise" due to the way it is presented. This leads to consumers not fully understanding the risks of their investments.

To address this problem the paper includes suggestions such as prominent disclosures drawing investors’ attention to the fact they could lose all of the money they invest and visual-based risk warnings (for example, a traffic light system to illustrate investment risk). It is possible that lengthy pages of black and white text we are all used to seeing may be scrapped in favour of more engaging and attention-grabbing formats.

While these changes are still at the discussion stage, financial promotions and consumer protection are hot topics for the FCA and accordingly we are likely to see changes in this area on the horizon.

The FCA is inviting feedback on its discussion paper by 1 July 2021, with the intention to consult on rule changes later this year.