Clampdown on marketing of high-risk investments

The role of the Financial Conduct Authority isn’t to play nanny, but to ensure clear and concise risk warnings.

The Financial Conduct Authority (FCA) has revealed finalised stronger rules to help tackle misleading adverts that encourage investing in high-risk products.  

Commenting, Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “Like a moth to a flame, too many people are putting their money in products that they simply don’t understand or are too risky for them - reeled in by the allure of glossy marketing. 

“There was a boom of people investing for the first time during the pandemic, and the worry is that novice investors who experienced a baptism of fire by losing money on high-risk bets could be put off investing for life – which could scupper their financial goals. 

“The FCA has been looking at ways to reduce the number of people investing in products that do not match their appetite for risk. The role of the regulator isn’t to play nanny, but to ensure that the marketing of financial products isn’t salacious and has clear and concise risk warnings to help consumers make an informed decision for themselves.  

“The new rules add much needed red tape, requiring firms approving and issuing marketing to have the right expertise and those marketing some types of high-risk investments to conduct better checks to make sure those investments are well matched to consumers. The biggest questions here are: what constitutes the right expertise and what will the better checks look like in practice? 

“As well as having more rules to clampdown on irresponsible marketing, more nuanced conversation is needed about investment risk. Risk is an inherent part of investing, but there are some investments that raise the stakes to levels akin to slot machines in a Las Vegas casino. Investors need to truly understand their attitude to risk – would they be able to sleep at night if they purchased a risky investment in which they could lose their entire investments if things went south?  

“The FCA’s clampdown of high-risk products does not apply to cryptoassets, the area of investments where more stringent rules and regulation are needed most. But the FCA said that rules will be published for this sector after the government confirms how it will be brought under its remit. There is no time to delay. While cryptocurrency has come a long way since its humble beginnings in the niches of the internet, the crypto market remains a Wild West – blighted by scams, fraud and irresponsible marketing.” 

Key points: 

• Under the stronger rules, firms approving and issuing marketing must have appropriate expertise, and firms marketing some types of high-risk investments will need to conduct better checks to ensure consumers and their investments are well matched. 
• Firms also need to use clearer and more prominent risk warnings and certain incentives to invest, such as ‘refer a friend bonuses’, are now banned. 
• The new rules will not apply to cryptoassets. Once the government and Parliament confirms in legislation how crypto marketing will be brought into the FCA's remit, the FCA will publish final rules on the promotion of qualifying cryptoassets. 
• These rules are likely to follow the same approach as those for other high-risk investments.