The FCA Is Introducing New Guidelines on Promoting High-Risk Investments

The Financial Conduct Authority (FCA) is introducing new guidelines for promoting high-risk investments. While crypt is classified as high-risk, the new rules will not apply to the promotion of crypto assets.

The FCA is waiting for the UK government's decision on how to legislate cryptocurrencies but highlights similar rules will apply to crypto-related products. The new UK PM will only be announced on 5 September 2022.

Companies will be required to clarify the risks in investing in an instrument and cannot offer incentives such as referring a friend, which is banned under the new rules. 4,226 ads were amended or withdrawn following the FCA's intervention.

Sarah Pritchard, the Executive Director, 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 is asking for feedback on its new rules by 10th October 2022. The final rules will be introduced at the beginning of 2023.

Enhancing the Client's Journey

The FCA is anticipating that 300 firms will be affected by its new rules in the crypto space, which will in turn affect over 2 million consumers/security holders.

source: FCA

The FCA wishes to enhance the risk warnings. Inducements to invest (such as refer-a-friend), to be banned, and personalized risk warning pop-ups for new investors with the company must be displayed.

Companies will be required to regularly check the compliance of approved promotions, ensuring they are in line with the FCA. Evidence declarations will also be required.

source: FCA

Below is an example of how the new rules are implemented. The 24hr cooling period is to prevent any irrational decisions that are often emotionally driven.

If a retail investor is lured by high returns due to his financial conditions, the cooling period may improve the decision-making process from the consumer's angle.

source: FCA

Furthermore, the UK regulator will ban mass marketing to retail investors for Non-Mass Market Investments (NMMI). Mini-bonds or pooled investments in a fund that has not been authorized by the FCA are considered as NMMI.

All of the new rules are available on the FCA's website.