FCA Considering Regulatory Changes to Consumer Investment Landscape

Guides & Advice
Published: 19th October 2021
Area: Corporate & Commercial

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The need for regulation

The FCA has announced that a large part of its 2021/2022 commercial strategy is to help consumers with their investment decisions and in particular, what safeguards and controls should influence consumers in their choice of funds and investment schemes they invest their money in. They are concerned that many consumers invest in products that are high risk, unsuitable in terms of risk, or are just plain scams.

While a consumer may complain about such an investment, many of the promoters of these investment schemes would be out of business at the point the complaint is made.  The FCA has noted that the Financial Services Compensation Scheme has recently paid £833 million to successful complainants. That, in turn, leads to complaints from those well-respected providers and advisors, as their businesses are facing ever-increasing levies. Ahead of the strategy’s full publication in 2022, the FCA has already given details as to how this support will be provided and how the process will work.

Fund valuation issues

But why the need for this element of the FCA’s strategy? For some time it has been concerned about how fund values are promoted by investment companies to consumers and whether investors are being given a true representation of what it is they are investing in.

Call for input

In September 2020, the FCA called for input on the consumer investment market, in a bid to gain further understanding on how certain issues could be resolved.

In July 2021 the FCA looked at 18 unnamed investment firms and expressed concerns as to how such fund values were arrived at. The FCA was also troubled as to the role of Non-Executive Directors (NEDs). The view was that many were inexperienced in this sector and did not give sufficient challenge to the main board. Equally, it was noted that administration expenses were often monitored very carefully in what was thought to be delivering the best value to investors. The FCA took the opposite view and thought greater expense should be spent on analysing value and investor communications throughout the investment life cycle.

What is the FCA’s Plan?

The FCA will take a multi-pronged approach to helping consumers with their investment portfolios. Sections of the plan include:

  • Creating a better environment for investments

  • Considering how the investment market looks today

  • Considering what the current threats are to the investment market

  • Considering what the current risks are that the investment market faces

  • A deeper dive into scam culture and the harm it causes to consumers

  • A strategic road map for delivery of long-term and short-term actions

What else does the FCA propose?

The FCA is mindful of the fact that many investors are now administering their own investment portfolios that can consist of either ISA’s or SIPPS. These same investors will target the funds that meet their personal requirements, be that growth or environmental and at present as we are seeing a huge rise in ESGs. In light of this investor freedom and the variety of products available, the FCA proposes;

  • £11m “Investment Harm” campaign to bolster the impact of its strategic road map

  • Reviewing FSCS compensation framework

  • Providing a new level of assistance to consumers, giving them transparency and clarity

Self-discipline versus imposed regulation

The FCA is urging the investment sector to improve best practices. Those with good management and effective systems have nothing to fear, others may wish to embark on a process of self-improvement, failing which, increased regulation will become the constant narrative within the sector.

For further information on the FCA and its proposed regulatory changes, contact Edward Flanagan.

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Eddie and his team advise clients on a wide range of issues concerning leasing, hire, consumer credit, the FCA source book and the regulatory landscape affecting the UK finance and leasing sector.

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