The Financial Conduct Authority (FCA) has announced tougher rules on financial promotions, aiming to clamp down on misleading adverts that push investors towards high-risk products. 
The new regime will require firms approving and issuing marketing to have “appropriate expertise” while companies marketing high-risk investments have to ensure alignment between consumers’ attitudes and the risks of their investments.
To achieve this, the FCA is demanding clearer and more prominent risk warnings and banning some incentives to invest, including friend referral bonuses.
The intervention is designed to allow better consumer understanding of the risks involved in specific investment products and to promote fairer marketing practices, in a context where the FCA identified 4,226 poor-quality adverts in the first seven months of 2022, which had to be amended or withdrawn.
The move is part of the regulator’s Consumer Investments Strategy and is released after last week’s Consumer Duty, demanding firms to act to deliver “good outcomes” for retail customers.
“The FCA wants to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite,” read the report. “This follows concerns that a significant number of people who invest in high-risk products do not view losing money as a risk of investing and invest without understanding the risks involved.”
Crypto assets are not affected by the new regulation, as the FCA is awaiting government and parliamentary confirmation of its area of responsibility around crypto. However, the asset class is likely to be subject to similar restraints once legislation on how crypto marketing will be brought into the FCA's remit is confirmed.
Crypto rules are likely to follow the same approach as those for other high-risk investments, the regulator said, as remain high risk. The FCA has warned in the past that consumers need to be prepared to lose all their money if they choose to invest in cryptocurrencies.
Sarah Pritchard, executive director, markets at the FCA, said it will act where it sees products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading.
“We want people to be able to invest with confidence, understand the risks involved and get the investments that are right for them which reflect their appetite for risk,” she said.
“This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”
Myron Jobson, senior personal finance analyst at interactive investor, highlighted how uninformed investors are “reeled in by the allure of glossy marketing like a moth to a flame”.
Alongside more rules to clamp down on irresponsible marketing, he also stressed the need for a more nuanced conversation about investment risk, especially around the “Wild West” of cryptocurrencies.
“Risk is an inherent part of investing, but there are some investments that raise the stakes to levels akin to slot machines in a Las Vegas casino. Investors need to truly understand their attitude to risk – would they be able to sleep at night if they purchased a risky investment in which they could lose their entire investments if things went south?” he said.
Nathan Long, senior analyst at Hargreaves Lansdown, saw this as “a thoroughly sensible set of measures”, as it strikes the right balance between reducing detriment and providing investment opportunity.
“The obvious next step having clamped down on selling of higher risk investments is to free up the rules to better help firms explain mainstream investments to would-be investors,” he added.