PIMFA, the trade association for the wealth management and financial advice industry, has called on the government to tighten the rules around the promotion of unregulated financial products.
Responding to HM Treasury’s consultation on the approval of financial promotions, PIMFA has called for the approval of unauthorised financial promotions to become a regulated activity, having previously raised concerns about the issue and its impact on the industry and consumers alike.
Simon Harrington, senior policy adviser at PIMFA, said in a statement: “Given the potential for harm for consumers, and the cost that then falls onto firms in funding the Financial Services Compensation Scheme (FSCS), we believe that it is right that a gateway is introduced for the approval of financial promotions.
“However, as a result of the experience of many of PIMFA’s member firms of being regulated, we retain very little confidence that the level of Regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes is not sufficient and conducive to consumer harm.’
“Making the approval of financial promotions a regulated activity would mean the FCA could take enforcement action against those firms that approve unsuitable investments without having the necessary expertise to do so.
“This will improve the market; reduce consumer harm and ultimately reduce calls on the FSCS where rising levies over the last five years have become unsustainable for PIMFA members. This is an easy win for all parties involved and we are urging them to grasp this opportunity.”
PIMFA believes in this current era of ultra-low interest rates and financial anxiety due to Covid-19, many consumers are falling victim to investments which supposedly offer high rates on their investments.
All too often consumers are told such investments are low risk, while offering high returns. Moreover, such products are not always marketed to sophisticated or high-net-worth investors and are often marketed to those on lower incomes or inexperienced savers.
By making the approval of financial promotions a regulated activity, the government would be empowering the FCA and enabling it to take enforcement action on firms that approved unsuitable investments without the necessary expertise or due diligence.
Additionally this would encourage firms to consider their own practices given the added weight that the undertaking of a regulated activity brings – in light of our concerns about the standard of regulatory supervision as well as the capacity of the FCA at present, this should be welcome.
In January of this year, the FCA temporarily banned the mass-marketing of high-risk mini-bonds to retail investors, before eventually banning them totally in June.
The FCA introduced the ban following concerns that mini bonds were being promoted to retail investors who neither understood the risks involved nor could afford the potential financial losses, as reported in Professional Adviser.