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FCA Consumer Investments Data Review: 1,716 Warnings Against Unauthorized Firms From Apr 2022 to Mar 2023

2023-12-11 Brokersview

The UK FCA annual report on warnings

The UK's Financial Conduct Authority (FCA) has released a review of consumer investment data for the period April 2022 to March 2023, highlighting 1,716 warnings issued by the regulator against unauthorized individuals and firms.


During this period, the regulator banned one in every five new consumer investment firms that applied to enter the market. On top of this, the UK regulator secured £4.9 million in consumer redress from unauthorized investment firms.


However, alongside these positive steps, the report also revealed some of the regulatory challenges in the UK. There has been a significant spike in helpline inquiries about potential scams since 2020, jumping by 12%, indicating continuing threats to investors.


There was a significant rise in inquiries about specific scams, including recovery room scams (21%), scams impersonating the FCA (38%), and cryptocurrency scams (17%). 80% of inquiries about potential cryptocurrency scams were made by investors after they had invested.


According to the report, the regulator's focus was on curbing unauthorized activities. The FCA mentioned that more than 25,000 reports of potentially unauthorized businesses have led to investigations and enforcement actions against 212 firms and individuals.


In August 2022, the FCA took a significant step towards strengthening the regulation of financial promotions for high-risk investments. These reforms aim to increase consumer awareness and raise standards for firms and individuals involved in unauthorized financial promotions. By December 2022, an initial set of regulatory reforms was enacted, mandating improved risk warnings in high-risk investment promotions.


However, a review of 67 crowdfunding and peer-to-peer companies shortly after the enactment of the regulations revealed that 60% of the companies assessed did not meet the updated standards. Inquiries about scams proliferated, while those related to investment products declined.


Recently, the FCA introduced interim measures to enable investment firms to provide clearer cost disclosures. These measures enable consumers to make informed investment choices. The move is in response to concerns that the current disclosure rules produce ambiguous cost information.


The FCA's introduced measures empower funds to offer additional context in their cost disclosures. Additionally, the agency has encouraged firms to incorporate additional information into their broader disclosure documents while evaluating their obligations under the consumer duty.


The FCA has introduced measures to enable funds to provide more contextual information in their cost disclosures. In addition, the agency is encouraging firms to include more information in wider disclosure documents as they assess their consumer responsibility obligations.


Earlier proposals by the FCA stipulated that personal investment firms must maintain sufficient capital reserves to compensate consumers who have been affected by improper financial advice. This initiative implements a "polluter pays" principle and ensures that firms are held accountable for the financial advice they provide.


Under the proposals, investment advisors will be required to assess potential liabilities and ensure that sufficient capital is available for compensation. The measure is intended to curb the Financial Services Compensation Scheme (FSCS) from paying out large amounts of compensation for substandard advice.


(Source: Finance Magnates)