On 15 September, the FCA published its ambitious three year consumer investment strategy. Its aim is to foster an environment where consumers are more confident to invest, and have more protection from scams and appropriate redress against those who would encourage investment in funds too risky or unsuitable for them.
The strategy identifies the drivers of consumer detriment risk and their proposed remedies across four key areas:
- Mainstream investments.
- Higher risk investments.
- Scams and Fraud.
- Consumer redress.
The FCA recognises there are not a quick fix for the detriments it has identified, necessitating a package of short- and long-term measures which includes:
- Considering regulatory changes to make it easier for firms to provide more help to consumers (without overstepping into advice territory) to invest `excess' cash.
- A new £11m investment harm campaign to help consumers make better-informed decisions.
- Strengthening the financial promotions regime in three areas (i) classification of high-risk investments, (ii) further segmenting the high-risk market and (iii) strengthening the requirements on firms when they approve financial promotions.
- Consulting on proposals to on changes to rules in relation to its expectations of the Principals of Appointed Representatives (ARs).
- Exploring the ways that firms can demonstrate the provision of good advice (e.g. third party audits) and monitoring of the Professional Indemnity Insurance (PII) market.
Unusually, the FCA have set quantitative metrics for each of the four outcomes it has identified and these targets are split between near term (by 2025) and longer term (up to 2030) relating solely to consumer redress.
The FCA has lost no time in demonstrating the `higher expectations for the standard of care firms provide for consumers' that it announced in the Consumer Duty proposals and Business Plan. With the priority of enabling consumers to make effective investment decisions, and invest with confidence, but not “restricting” them, the messaging is clear - the ball is in the industry's court to deliver in this consumer outcomes focused environment.
However, this isn't the only change in emphasis evident from the published strategy that is worthy of note.
- In announcing the proposals, Sarah Prichard, Executive Director of Markets at the FCA, said “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”. This is evident from the actions it has set out in the strategy and its focus on the use of data and technology.
- The inclusion of specific, measurable and timebound outcomes listed above lays down a marker for how the FCA will be holding itself `accountable publicly and transparently'. The conscious movement towards increased accountability is a theme reiterated in the CEO's recent Mansion house speech.
- The strategy's aims, package of measures and success criteria brings to life the FCA's new approach as set out in the 2021/22 Business Plan (more innovative, assertive and adaptive and become more transparent, accountable and evidence-driven).
This is an ambitious, well-reasoned strategy backed up by clear data and research anchored to the FCA's strategic objectives. However, it also represents a significant programme of work at a time when the FCA is also pursuing a number of other major initiatives - Diversity & Inclusion, ESG, Consumer Duty as well as undertaking its own extensive transformation programme. As such, it will be a challenge to progress all these material initiatives in unison whilst still ensuring that they are effectively designed and deployed and therefore achieving the stated outcomes.