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FCA unveils £11m campaign to address idle cash holdings and high-risk investments

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The Financial Conduct Authority has unveiled measures aimed at improving the £1.6trn investment market for UK consumers, including reducing the number of investors sitting idly in cash by 20% and halving the amount investing in unsuitable higher-risk products.

On Wednesday, the watchdog published an £11m campaign and strategy it said should lead to fewer people being scammed or persuaded to invest in products that are too risky.

It said nearly 8.6 million consumers hold more than £10,000 of investable assets in cash and missing out on investment returns. It wants, therefore, to reduce this number by 20% by 2025.

AJ Bell head of personal finance Laura Suter noted that if 1.7 million people, each with £10,000 sitting in cash, invested their money then collectively they could make £9.8bn extra in returns over 10 years, based on cash earning 0.5% and investment returns earning 5% a year.

“For many of these individuals investing is a logical route, as they don’t need the safety of cash or immediate access to their money, but it’s often a job on the to-do list that people don’t get around to,” she added.

Not all high-risk funds are the same

The FCA also wants to halve by 2025 the number of consumers who are investing in higher risk products that are not aligned to their needs. It noted 6% of consumers had increased their holdings of higher risk investments during the pandemic, with 45% of self-directed investors saying they did not realise the risks.

But Interactive Investor head of personal finance Moira O’Neill warned the regulator not to tar all high-risk investments with the same brush.

She said: “The narrative around ‘higher-risk’ investments is difficult. Crypto-currencies and crowdfunding, which the regulator seems to be most worried about, are certainly higher risk and speculative. But it is important to draw a clear line between these type of investments and well diversified, high-quality collectives like investment trusts and funds, that have led to good consumer outcomes when used sensibly over the long term.

“I would be disappointed to see anything that leads to consumers avoiding sensible long-term higher-risk investments such as these.”

Additionally, the regulator is seeking to reduce the money consumers lose to investment scams perpetrated or facilitated by regulated firms. In 2020/21 consumers lost nearly £570m to investment fraud, three times the amount in 2018.

Other measures

The regulator’s measures also include:

-Exploring regulatory changes to make it easier for firms to provide more help to consumers who want to invest in relatively straightforward products

-Being more assertive and agile in how it detects, disrupts and takes action against scammers

-Strengthening the Appointed Representatives (AR) regime, with a consultation to be launched later this year, which aims to raise the quality of financial advice

-Strengthening the financial promotions regime in 3 areas; the classification of high-risk investments, further segmenting the high-risk market and strengthening the requirements on firms when they approve financial promotions

-Reviewing the compensation framework to ensure that it remains proportionate and appropriate, particularly where firms fail leaving behind compensation liabilities for the FSCS to address. This will reduce the cost and impact of poor advice.

‘We want to give consumers greater confidence to invest safely’

FCA executive director of markets Sarah Pritchard said: “Investors have never had more freedom – technology has democratised the market, new products have become available, and people have better access to their life savings than before. But that freedom comes with risk. We want to give consumers greater confidence to invest and to help them do so safely, understanding the level of risk.

“The package of measures we have announced today are intended to support that – we want people to have greater confidence to invest. We also want to be able to adapt more rapidly to the changing market and be assertive where we see poor conduct and consumer harm.”