British financial watchdog toughens rules on high-risk product ads

·2-min read
FCA signage seen at their head offices in London

By Huw Jones

LONDON (Reuters) - Britain's financial watchdog finalised tougher rules on Monday for advertising high risk products, such as peer-to-peer loans and the mini-bonds sold by investment firm London Capital & Finance (LCF), whose collapse led to a government bailout of investors.

The Financial Conduct Authority (FCA) said firms approving and issuing marketing material must have "appropriate expertise" and conduct better checks for ensuring that customers understood the risks involved.

"Firms also need to use clearer and more prominent risk warnings and certain incentives to invest, such as 'refer a friend bonuses', are now banned," the FCA said in a statement, referring to giveaways for customers who introduce new clients.

The FCA wants to make it harder to sell high risk products, which also include other types of speculative illiquid securities, unlisted equity and debt, crowdfunding, and unregulated collective investment schemes.

"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," the FCA said in a statement.

These investments came under the spotlight after LCF collapsed in 2019, leaving 11,600 investors in mini-bonds facing losses of up to 237 million pounds.

An independent report said the FCA had failed to supervise LCF properly, triggering a revamp to become a more "assertive" watchdog. Last week it said it would impose a tougher "consumer duty" on firms to crack down on mis-selling.

The new rules, being rolled out over six months, will not apply to cryptoassets until a law has been approved to bring the sector under the regulatory net, the FCA said.

The FCA and Bank of England have repeatedly warned that investors in crypto must be ready to lose every penny.

"Where we see products being marketed that don't contain the right risk warnings or are unclear, unfair or misleading, we will act," said Sarah Pritchard, the FCA's executive director for markets.

The watchdog also launched a public consultation on widening the range of retail investors who can invest in long term asset funds.

(Reporting by Huw Jones)