FCA publishes review of high-risk investment compliance

FCA has released its findings of its review on how firms offering restricted mass markets investments (RMMIs) have complied with new rules on the customer journey.

This follows the 2022 policy statement on strengthening financial promotion rules, which outlined new requirements for firms promoting high-risk investments (HRIs) to retail clients. The initial rules, requiring risk warnings on financial promotions, went live on 1 December 2022, followed by the remaining rules on 1 February 2023. The Q1 2023 financial promotions quarterly data revealed that the level of compliance with these rules was far below the expected standard.

The rules were designed to ensure that firms communicating and approving financial promotions for HRIs do so to a high standard, ensuring consumers receive high-quality financial promotions that enable them to make effective, well-informed investment decisions.

In the report, FCA highlighted examples of good and bad practice across a range of areas. Some interesting examples of good practice include:

• Giving clear information that there is a cooling-off period, the reason for the cooling-off period and blocking the consumer form being able to view investment opportunities during the cooling-off period, to allow consumers to make a considered decision on whether to proceed;
• Using additional resources such as Companies House or the FCA Register to verify information provided by consumers self-categorising as sophisticated and providing additional tools to help consumers understand and calculate their net worth;
• Giving additional warnings to those technically required, at appropriate points in the customer journey;
• Making the risk summary appropriate to the product and giving different summaries for products with different risks;
• Taking a holistic approach to assessments and making them appropriate for the products in question;
• Limiting the number of times a customer can take the test.

Examples of bad practice included:

• Failing to consider the full range of incentives that firms offer against the scope of the ban – including those that are not paid immediately on sign up or that consumers do not have to invest in in order to qualify;
• Not expressly giving consumers the option to proceed with or leave the investment journey at the end of the cooling off period, or making the option to carry on more prominent than the option to leave;
• Giving risk warnings too late in the procedure – and, while firms mainly used the right wording, they often did not meet FCA’s expectations on prominence of warnings;
• Trying to push customers to self-categorise when it appeared the category was not appropriate and the firms should have been telling customers the investment was not appropriate;
• Assuming categorisations;
• Poorly designed assessments which made the correct answer obvious.

FCA has given feedback to the firms involved and now expects all firms offering RMMIs to consider its findings and make appropriate improvements to their processes.