FCA bans ‘refer a friend’ in new high-risk marketing rules

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“We want people to be able to invest with confidence, understand the risks involved, and get investments that are right for them and that reflect their risk appetite.”

The Financial Conduct Authority (FCA), the UK’s financial watchdog, has announced a new set of rules aimed at tackling misleading advertisements that encourage consumers to invest in high-risk products.

The stricter rules come into effect after the FCA found that a significant number of people who invest in high-risk products do not see losing money as a risk of investing and invest without understanding the risks involved. .

These findings led the regulator’s consumer investment strategy to include the goal of reducing the number of people investing in high-risk products that do not reflect their risk appetite.

The ongoing successful campaign against deceptive marketing resulted in 4,226 advertisements being edited or removed following FCA intervention, in the year ending July 2022.

Sarah Pritchard, Executive Director of Markets at FCA, said: “We want people to be able to invest with confidence, understand the risks involved and get investments that are right for them and reflect their risk appetite. Our new simplified risk warnings are designed to help consumers better understand the risks, although businesses also have an important role to play. Where we find that products on the market do not contain the correct risk warnings or are unclear, unfair or misleading, we will take action.

“This is all the more important now that the rising cost of living could lead people to seek higher returns on investment, which can prove risky,” added the FCA’s chief executive.

Under the new rules, companies marketing certain types of high-risk investments will have to use clearer and more visible risk warnings. Certain investment incentives, such as “referral bonuses”, are now prohibited. Additionally, companies will need to perform better checks to ensure that consumers and their investments are a good match.

Regarding the crypto industry, the FCA will publish final rules on the promotion of qualifying crypto-assets, once the government and Parliament have confirmed in legislation how crypto marketing will be incorporated into the remit. of the FCA.

So while these new rules do not yet apply to crypto, the FCA expects that the rules governing crypto promotions are likely to follow the same approach as those for other high-risk investments.

Crypto has become one of the main concerns of the FCA due to the popularity of the asset class among retail users despite its high risk. The FCA warns that people must be prepared to lose all their money if they choose to invest in crypto-assets.

The financial watchdog took the opportunity to launch a consultation with the aim of bringing long-term asset funds (LTAF) to a wider group of retail investors and schemes.

The FCA is seeking comment on access to alternative investments, which consumers could use to diversify their portfolio and for potentially higher returns, while providing strong consumer protection. Market participants are expected to submit their comments on this by October 10, 2022. The final LTAF rules are expected to be confirmed early next year.

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