Firm up language on high-risk investments, ii urges FCA

High risk is about more than just crypto and CFDs, says interactive investor's Moira O'Neill.

Today is the last day for responses to the FCA Consultation Paper (CP22/2): Strengthening our financial promotion rules for high-risk investments, including crypto assets. Today is also the second anniversary of the national lockdown, which also closely coincided with the rise of many first-time investors.

interactive investor (ii), the UK’s second largest investment platform for private investors, is supportive of the consultation’s intentions, but believes the FCA’s treatment of what a ‘high risk investment’ constitutes (crypto, CFDs etc) is fundamentally flawed.

So, while this consultation is beyond ii’s scope (ii does not trade in Restricted Mass Market Investments or Non-Mass Market Investments), as the home to more than 400,000 retail investors, ii has felt an obligation to submit a response.

Moira O’Neill, Head of Personal Finance, interactive investor, says: “We welcome the policy work the FCA is undertaking to strengthen restrictions on the promotion of Restricted Mass Market Investments and Non-Mass Market Investments and are supportive. However, we are concerned by the direction of travel the FCA is heading in regarding the use of the term ‘high risk investment.’

“‘High risk’ means different things to different people - whether saving, investing, or gambling with their money. For many, high risk would mean investing for five years in a 100% equity ISA. To others, high risk might be a long-term investment in a fund with a 50/50 shares/bond split. For others, high risk might mean speculating in crypto and CFD-type products, and that certainly seems to be the way the FCA is defining it, as part of their InvestSmart campaign (and the title of this consultation paper).

“As tens of thousands of investors still await answers around Woodford, after a significant tech correction, and two years of stock market volatility, let’s not forget that high risk is about more than just crypto and CFDs.

“The proposed new risk ‘scale’ (Readily Realisable Securities, Restricted Mass Market Investments, and Non-Mass Market Investments) is useful for industry practitioners, but it does little to help retail customers understand the risk of a particular investment.

“We would argue that crypto, CFDs, etc. go above and beyond ‘high risk,’ into the realms of speculation and gambling, so a new definition needs to be created (such as ‘ultra-high risk’). Otherwise, there is a risk that investments previously considered to be ‘high risk’, are recalibrated as ‘moderate risk’, simply because even higher risk investments (e.g., mini bonds and cryptos) are now available.

“We also strongly believe that the regulator needs to start drawing a firm distinction between true investment platforms and those that, in reality, are akin to casinos, hiding behind an ‘authorised and regulated by the FCA’ label. Those ‘new platforms’ trading in CFDs go above and beyond what many would class as ‘high risk.’”