The Financial Conduct Authority (FCA) has placed restrictions on twice as many firms in the investment market compared to last year, as part of its strategy designed to prevent harm in the consumer investment market.
The restrictions include preventing firms from promoting and selling certain products or providing specific services like advice on defined benefit (DB) pension transfers.
Elsewhere, the FCA stopped 17 firms and seven individuals attempting to obtain a new FCA authorisation in the investment market where phoenixing or lifeboating was suspected. This is where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to or setting up a new firm.
The regulator also stopped the UK operations of 16 contracts for difference providers, that had entered its temporary permissions regime in 2021, where suspected scam activity was detected, or consumers were encouraged to trade excessively to generate revenue. Without FCA action consumers could have lost around £100m ($111m, €114m) a year.
The work forms part of the FCA’s consumer investments strategy, which is aimed at helping people invest with confidence.
‘Setting high standards’
Sarah Pritchard, executive director of markets at the FCA, said: “We want to see a consumer investment market where consumers can invest with confidence, understanding the level of risk they are taking, and where assertive action is taken when harm is identified. We know that it will take time to see the full impact of all our interventions, particularly given the worsening economic environment, but have committed to update each year on the progress that is being made.
“In the last year, we have maintained our focus on acting assertively and innovatively to tackle harm – we prevented one-in-five firms from entering the consumer investments market and we have taken action against unauthorised firms with a 40% increase in the number of consumer alerts issued.
“Setting high standards and acting quickly to crack down on problem firms will help ensure market and consumer confidence, supporting the integrity and growth of UK financial services.”
Simon Harrington, head of public affairs at trade body Pimfa, said: “We are particularly happy to see the FCA taking a more proactive approach against disreputable firms seeking to lifeboat and phoenix, which would otherwise further inflate the costs of the Financial Services Compensation Scheme for good firms – an issue we have repeatedly raised and campaigned on.
“In addition to keeping bad actors out of the market, the FCA must additionally direct its efforts towards making the authorisation process more efficient and clearing its authorisation backlog over the next reporting period. Firms in the advice and wealth sector are still reporting a significant wait for the approval of senior manager appointments. This is having a detrimental impact on the ability of well governed, high-quality wealth and advice firms to serve the needs of UK savers.”
Crackdown
Over the last year, the FCA has introduced more rules to protect consumers from harm, including strengthening financial promotions rules and introducing the Consumer Duty, and has consulted on proposals for a compensation scheme for former members of the British Steel Pension Scheme who received unsuitable advice.
It will also consult later this year on an advice regime for investing in stocks and shares ISAs and following that the UK regulator intends to conduct a review of the boundary between advice and guidance.
As part of its commitment to be a more outcomes-focused regulator, the FCA set four targets for the consumer investments strategy to achieve. While three of the four outcomes have declined, the FCA was clear when it launched the strategy that it will take time to embed changes and see the impact of these.
The metrics are also impacted by external factors, including the deteriorating economic environment which can lead to an increase in scams and people investing in high-risk investments which may not be right for them.
Once the strategy is fully implemented, the FCA expects the outcome measures to improve. The FCA will continue to review the consumer investments strategy and bolster this work where growing harm to consumers is identified.
Departure
In other news, Mark Steward has announced he will be stepping down as the FCA’s executive director of enforcement and market oversight after seven years with the regulator.
Steward joined the FCA in 2015 from the Hong Kong Securities and Futures Commission (SFC), where he was executive director with responsibility for the enforcement division.
Nikhil Rathi, chief executive of the FCA, said: “Mark has brought his formidable experience as a regulator and as a litigator to the FCA, delivering significant enforcement cases across a broad spectrum, as well as the FCA’s data-led approach to market oversight.
“That enormous contribution is a result of Mark’s abiding belief in fairness, that markets must be clean if the economy is to thrive and in doing the right thing on behalf of consumers. He has shown that the FCA is willing to take on challenging cases, will use the full extent of our powers and will deliver results that have a real impact for the markets we oversee and for those who rely on them.
“I am hugely grateful for Mark’s leadership, dedication and expertise and wish him the very best for the future.”
Steward added: “It has been a privilege to serve the FCA throughout many challenges over the last seven years and, as I move on, to leave behind such a strong team for the future.”
The global search for Steward’s successor will begin shortly. He will leave the FCA in Spring 2023.
