FCA publishes new plans to tackle consumer investment harm

The FCA has unveiled a new strategy to tackle consumer investment harm and confirmed it will publish metrics to assess whether the new plans are being met.

The consumer investments market accounts for £1.6trn held or invested by consumers through the services of over 6,000 wealth managers, advisers and investment platforms.

While most of the market is meeting consumer needs, the FCA said, it also warned there are still some areas where harm is occurring.

By 2025, the FCA is aiming for a 20% reduction in the number of consumers who could benefit from investment earnings but are missing out. Currently, there are nearly 8.6 million consumers holding more than £10,000 of investible assets in cash.

The regulator also plans to halve the number of consumers who are investing in higher risk products that are not aligned to their needs. FCA data suggested that 6% of consumers increased their holdings of higher risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.

Furthermore, the FCA revealed plans to reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms, after consumers lost nearly £570m to investment fraud in 2020/21 – a figure that has tripled since 2018.

The regulator said the plans will give consumers the confidence to invest, supported by a “high-quality affordable advice market”, which would lead to fewer people being scammed or persuaded to invest in products too risky for their needs.

FCA executive director of markets, Sarah Pritchard, commented: “Investors have never had more freedom – technology has democratised the market, new products have become available, and people have better access to their life savings than before. But that freedom comes with risk. We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk.

“The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”

Commenting on the move, AJ Bell head of personal finance, Laura Suter, said the regulator is taking a “two-prong approach”.

“On the one-hand trying to get more people to invest their money rather than leave it in cash and on the other trying to shield inexperienced investors from risky investments,” Suter said.

“The FCA’s plan is to get almost two million more people to invest, as its research shows 8.6 million people currently have over £10,000 investable assets in cash and it wants to reduce that by 20%. If 1.7 million people invested £10,000 in the stock market, that represents a £17bn influx of money to the investment market.

“The pandemic has boosted lots of people’s savings pots but most of it is idling in current accounts getting paltry returns, when in reality much of it could be invested. The issue is that lots of these people feel unable or ill-equipped to start investing. Anything the regulator can do to make taking that leap into the stock market for the first time easier and to allow providers to offer more hand-holding should be applauded.”

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