The UK Financial Conduct Authority (FCA) has published a review of consumer investment data for the period from April 2022 to March 2023. The regulator issued 1,716 warnings against unauthorized individuals and companies.
During this period, one in every five new consumer investment firms applying to enter the market was banned by the regulator. On top of this, the UK regulator also secured £4.9m in consumer compensation from unauthorized investment firms.
However, alongside these positive steps, the report also reveals some of the regulatory challenges the UK faces. Helpline inquiries about potential scams have soared since 2020, jumping 12%, suggesting the threats to investors continue.
There has been a significant increase in inquiries about specific scams, including fund recovery scams (21%), scams impersonating the FCA (38%) and cryptocurrency scams (17%). 80% of inquiries about potential cryptocurrency scams are made by investors after investing.
The FCA's focus is on curbing unauthorized activities, the report said. The FCA mentioned that more than 25,000 reports of potentially unauthorized business resulted in investigations and enforcement actions against 212 companies and individuals.
In August 2022, the FCA took an important step in strengthening the supervision of high-risk investment financial promotions. The reforms aim to increase consumer awareness and improve standards for companies and individuals involved in unauthorized financial promotions. By December 2022, an initial set of regulatory reforms will be enacted to mandate improved risk warnings in high-risk investment promotions.
However, a review of 67 crowdfunding and peer-to-peer companies shortly after the regulations were enacted revealed that 60% of the companies rated did not meet the latest standards. Inquiries about scams surged, while inquiries related to investment products fell.
Recently, the FCA introduced temporary measures to enable investment firms to provide clearer cost disclosures. These measures enable consumers to make informed investment choices. The move comes in response to concerns that current disclosure rules create vague cost information.
The measures introduced by the FCA enable funds to provide more context in their cost disclosures. Additionally, the agency is encouraging companies to include more information in broader disclosure documents when evaluating their consumer responsibility obligations.
The FCA has taken steps to enable funds to provide more context in their cost disclosures. Additionally, the agency is encouraging companies to include more information in broader disclosure documents when evaluating their consumer responsibility obligations.
Earlier advice from the FCA stipulates that personal investment firms must maintain sufficient capital reserves to compensate consumers who have been affected by inappropriate financial advice. This initiative implements the "polluter pays" principle and ensures that companies are accountable for the financial advice they provide.
Under the proposals, investment advisers will be required to assess potential liability and ensure sufficient capital is available for indemnification. The measure aims to curb huge compensation payments from the UK's Financial Services Compensation Scheme (FSCS) for substandard advice.