Preparing for the future of Consumer Investments

The Financial Conduct Authority (FCA) has published a statement in which it outlines its approach to the „future of consumer investments“, that is it’s approach to any future rules and regulations to enhance the safeguards, information, accessibility, and experience in relation to retail investments. The FCA thereby points out five primary areas of focus which are briefly described below:
##### Areas of focus in relation to retail investments
(1) Product diversity: Risk tolerance differs among individuals across various financial aspects. While some prefer low-risk investments for savings and pensions, others might be open for higher risks investments for a portion of their money. It is important, so the FCA, that the UK financial market offers products with varying risk options. All individuals seeking investments should find suitable products from regulated firms, which is why the FCA is seeking to revise regulations for public offerings and considering changes to prospectus requirements to enhance the range of products that may be offered to retail customers.
(2) Support for customers: According to the FCA, consumers should have accessible, affordable assistance tailored to their investment needs. For straightforward investment decisions, simple support should be available to guide them toward investments with positive outcomes. In more complex situations, however, they should have access to transparent and comprehensive financial advice at a fair cost. Therefore, the FCA together with the HM Treasury has initiated the so-called Advice Guidance Boundary Review (AGBR) (covered in a different event) which aims to enhance the corresponding regulatory framework, Any proposed new rules and regulations will align with initiatives such as the Consumer Duty, Pensions Dashboards, Compensation Framework Review, and disclosure reform and will be subject to public consultation.
(3) Availability and usefulness of product information: It is the FCA’s opinion that consumers need information that matches the complexity of their investment choices without overwhelming them. Effective communication is pivotal to foster informed decision making and clarity on investments which is why the FCA is proposing revisions to the rules under the currently retained PRIIPs Regulation and has implemented new policy statement (PS23/16) on disclosures relating to ESG products, particularly ESG investment funds. In this context, the FCA announces upcoming engagements with stakeholders, including the industry, to find out what’s best for consumers.
(4) Investors‘ approach to investment risk: All investments come with investment risk. However, these risks must be clear to investors prior to making investments and must thus be properly disclosed by regulated firms. Moreover, investors should be empowered to differentiate between legitimate risk claims and those made by untrustworthy companies. Therefore, a key focus of the FCA will lay on the formulation of rules and regulations to facilitate this objective. Whenever needed, the Authority will provide for necessary safeguards as briefly described below.
(5) Safeguards to protect retail investors: „Appropriate protections“ in the context of retail investments encompass various measures aimed at safeguarding consumers‘ interests. Far and foremost should firms prioritize the fair treatment of customers and ensure that investment products are presented in a way that allows consumers to make informed choices. However, there may be instances, where investors are unsatisfied with the product or the sales process, where no agreement can be reached between the firm and the investor, or where unsatisfactory firm conduct has led to poor consumer outcomes. This is where the FCA redress scheme, the Financial Ombudsman Service (FOS), and the Financial Services Compensation Scheme (FSCS) come into play; latter particularly in cases where firms face wind-down or resolution. To enhance protection for consumers, the FCA is currently consulting on the increase of regulatory capital for potential redress claims in the future CP23/24 and the scope of FCSC will be subject to further evaluation in an effort to facilitate the maximum protection possible.