UK markets watchdog says `strong case' for regulating product promotions

By Huw Jones
FILE PHOTO: Financial Conduct Authority Chief Executive Andrew Bailey speaks at a Bank of England press conference

By Huw Jones

LONDON (Reuters) - Britain's Financial Conduct Authority said a "strong case" could be made for regulating how financial products are marketed following a surge in online promotions.

"What's concerning is that we have seen an explosion in the number of high-yield investment opportunities that get offered on the internet," FCA Chief Executive Andrew Bailey told a news conference.

The marketing material is unregulated, even though the firms publishing them are.

"What concerns me is it is very hard to keep track of all these things," Bailey said.

The FCA was in contact with major internet service providers, but they take a fairly limited approach to scrutinising what goes online, Bailey said.

He advised people not to buy high-yield investment products on the Web. "There are investors attracted to this. I don't blame them."

The FCA's handling of investment firm London Capital & Finance (LCF), which collapsed in January, is being independently reviewed and one of its conclusions could be to make promotions a regulated activity, Bailey said.

The watchdog had ordered LCF last December to withdraw its promotional material for mini bonds. The firm went into administration with losses of up to 237 million pounds from unregulated 'mini bond' investments.

The Financial Services Compensation Scheme last month said some of the people who put money into LCF may be entitled to payouts covering their losses if they received misleading advice

LCF had three different auditors in as many years and they have questions to answer, Bailey said, adding that the auditors could be subject to potential legal action by administrators of the collapsed firm.

Bailey was speaking after the FCA's annual meeting, where people who bought LCF mini bonds accused the watchdog of being too slow to act and confusing them as to what the protections were.

Bailey told the meeting that the watchdog was often unable to act because products like a business loan, mini bonds and , marketing material lie outside the regulatory "perimeter".

The FCA, however, in its first annual perimeter review published made no recommendations to the government to extend the watchdog's remit.

The FCA has also been in the spotlight after the flagship 3.5 billion-pound investment fund of high-profile asset manager Neil Woodford was suspended in June, trapping investors.

Bailey said Woodford had been complying with the letter but not the spirit of rules. "We don't have evidence to suggest that there are other firms acting in the way that Woodford did," he said.

Bank of England Governor Mark Carney has said that open- ended funds like Woodford were "built on a lie" by saying they can hand investors their money back on a daily basis.

"I don't share the view that open-ended funds are per se bad. I do think that the Woodford case ... tells us a number of things about how you have to manage illiquid assets," Bailey said.

The BoE and the FCA announced a review last week into whether there should be longer redemption periods for funds with assets that cannot be sold quickly to raise cash.

(Reporting by Huw Jones; editing by Sinead Cruise, Larry King)