The UK financial regulator has mooted an industry-funded “consumer harm campaign” targeting the retail investment market that will cost £2.3 million in its first year alone.
In a move that reflects a growing incursion of regulators into the general advice space, the Financial Conduct Authority (FCA) proposed the publicity push as part of its mandate to enable “effective consumer investment decisions”.
“Our view is the investment distribution process, and the support network around it, is not working well enough for consumers to make effective decisions about their investments,” the just-released FCA business plan says. “We want consumers to have access to high-quality advice and support, and be aware of how to protect themselves from scams and fraud.”
First-up in the 2020/21 period the FCA plans to tackle the “harm caused by fraudulent and high risk illiquid investments” with the campaign to evolve over an initial five-year stretch.
“We plan to run the campaign over five years,” the FCA plan says. “These costs have not currently been included in our annual funding requirement (AFR) and we propose to recover £2.3m in 2020/21.”
The regulator says retail investment risks have risen in recent years with the shift to defined contribution superannuation plans and new pension choice freedoms.
According to the FCA, some consumers are “exposed to more investment risk than they expected or can absorb, including from sales of high-risk products and risk disguised in an investment wrapper”.
“We want to ensure products are designed to meet consumers’ needs, deliver value for money, and are marketed in a fair, clear and not misleading way,” the regulator says.
In a statement, interim FCA chief, Christopher Woolard, said: “At times like this it is more important than ever that the FCA leads the way on the protection of consumers, firms and the markets.
“Our Business Plan recognises the impact of coronavirus on the financial services industry, while looking forward at how we transform the FCA’s operations in future.”
The UK concerns reflect global regulatory angst about retail investment products that have triggered major reforms both in Australia and NZ.
For example, the Australian Securities and Investments Commission (ASIC) introduced tough new fund distribution rules that could also impact the NZ market. Across the Tasman, the now-delayed financial institution conduct legislation lays out similar regulatory oversight of investment product marketing and distribution.
In 2015 the FMA included an ‘investor capability strategy’ in its ambit for the first time, expanding the brief further from the original over-50 cohort to “all New Zealand investors” in 2017.
The FMA work is separate from the efforts of the Commission for Financial Capability (CFFC) – understood to be considering a reversion to its original Retirement Commission name – that includes the Sorted website.
And Sorted has seen a surge in usage in the wake of the coronavirus economic shut-down, Sorted editor Tom Hartmann said in a release last week.
New visitor numbers to the website were up almost 20 per cent in March, Hartmann said, while email questions rose four-times compared to the same month last year – although the latest weekly average total was just 80 queries.
“We understand this is a time of great uncertainty, but people might regret rushing into decisions based on fear,” he said in the release. “We urge them to visit us at Sorted first – they can have confidence that we’re independent and have their best interests at heart. We’ll help them find a way forward that’s right for them and their family.”
Meanwhile, financial watchdogs are “cooperating closely” on developing emergency measures to combat the COVID-19 market impact, according to the body representing global regulators.
The International Organization of Securities Commissions (IOSCO) – which includes the FMA among membership that covers 95 per cent of the world’s jurisdictions – says regulators are focusing on supporting “the operational and financial resilience of market infrastructures, the operational capability of market users, and the continued flow of information to these markets”.
“They are also providing the appropriate regulatory flexibility to help market participants address the challenges posed by COVID-19 while ensuring that market integrity and investor protection principles are maintained,” IOSCO says in a release.
IOSCO was also liaising with “other Standard Setting Bodies and the Financial Stability Board, including sharing information on policies and regulatory actions being taken”.