Latest information and insight from the world of regulation and consumer rights
1 August: City Watchdog Bolsters Stance Against Misleading Financial Promotions
The UK’s financial regulator has finalised tougher rules for the marketing and promotion of high-risk investments, writes Andrew Michael.
Under its new, more robust set of rules, the Financial Conduct Authority (FCA) says that firms approving and issuing marketing material “must have the right expertise”.
The regulator added that firms marketing some types of high-risk investments “will need to conduct better checks to ensure consumers and their investments are well matched”.
According to the FCA, firms also “need to use clearer and more prominent risk warnings”. In addition, certain incentives to invest, such as ‘refer a friend bonuses’, have now been banned.
As part of its Consumer Investments Strategy, the FCA says it wants to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite. In other words, taking out investments that are inappropriate for a certain individual’s financial situation.
Although the FCA warns consumers regularly about the financial dangers of investing in cryptocurrencies, the regulator’s new rules will not actually apply to cryptoasset promotions.
But the FCA said that once the UK government has confirmed in legislation how crypto marketing is to be brought within its remit, it will then publish final rules on the promotion of cryptoassets.
These are expected to follow the same approach as those for other high-risk investments.
FCA director Sarah Pritchard said: “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.”
“Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” Pritchard added.
Nathan Long, senior analyst at the investment platform Hargreaves Lansdown, said: “With a sharp focus on understanding consumer behaviour, the FCA is introducing pragmatic rule changes to clamp down on retail investors buying high risk investments.”
Long added: “The attention has rightly been placed on improving consumer understanding at the point of their decision making.”
29 July: More Protection For Funeral Plan Customers As Regulation Gets Underway
Companies that offer pre-paid funeral plans will be regulated by the Financial Conduct Authority (FCA) from today, offering greater protection to customers.
Funeral plans are designed to cover the main costs of cremation or burial, so that your family are not left with the bill after you die. Plans can be paid for upfront, as a lump sum or in monthly instalments of between one and 10 years.
Regulation will ban firms from cold calling potential customers, and from making commission payments to intermediaries such as funeral directors.
Providers will also be required to deliver funerals to all customers, unless they pass away within the first two years of taking out the plan, in which case a full refund must be offered.
FCA regulation also brings funeral plans under the Financial Services Compensation Scheme (FSCS), meaning consumers can now claim back their money up to £85,000 if a provider goes bust, while recourse will be available under the Financial Ombudsman Service (FOS) if a customer believes they have not been treated fairly by a provider.
Complaints about issues that occurred prior to FCA regulation can be raised, so long as the provider was registered with the Funeral Planning Authority (FPA) at the time.
Majority of market now regulated
So far, 26 funeral plan providers have been authorised by the FCA, including the UK’s largest providers, Co-Op Funeral Plans Limited and Dignity Funerals Limited.
These newly-authorised firms account for 1.6 million plans — 87% of the UK market. Providers that have not been authorised have until 31 October 2022 to either transfer plans to an authorised firm, or refund customers.
Emily Shepperd, executive director of authorisations at the FCA said: “We have worked tirelessly to assess funeral plan providers, under our robust authorisation process. We are pleased that 87% of the market is now under regulation.
“With our new rules in place, consumers will be better protected when they need it the most.”
The FCA advises customers to check whether their provider has been authorised. If not, they should get in touch with the provider to inquire about their plan.
27 July 2022: FCA Consumer Duty Rules Tighten Protections, End ‘Rip-Off’ Charges
UK regulator, the Financial Conduct Authority (FCA), is introducing rules designed to protect customers from being ripped off and to ensure they are treated fairly and get the support and service they need.
The FCA says its new Consumer Duty “will fundamentally improve how firms serve consumers. It will set higher and clearer standards of consumer protection across financial services and require firms to put their customers’ needs first.”
It will require firms to:
- end rip-off charges and fees
- make it as easy to switch or cancel products as it was to take them out in the first place
- provide helpful and accessible customer support, not making people wait so long for an answer that they give up
- provide timely and clear information that people can understand about products and services so they can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read
- provide products and services that are right for their customers
- focus on the real and diverse needs of their customers, including those in vulnerable circumstances, at every stage and in each interaction.
Among the effects of the new requirements, which will be phased in from July 2023, will be firms being obliged to offer all customers their best deals, rather than using them to tempt new customers. This rule is already in place for car and home insurance.
The reverse will also be true in that firms will be expected to make their best deals available to new customers.
The Duty is made up of an overarching principle and new rules that will mean consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.
The FCA says the new environment should foster innovation and competition. It says it will be able to identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.
Sheldon Mills at the FCA said: “The current economic climate means it’s more important than ever that consumers are able to make good financial decisions. The financial services industry needs to give people the support and information they need and put their customers first.
“The Consumer Duty will lead to a major shift in financial services and will promote competition and growth based on high standards. As the Duty raises the bar for the firms we regulate, it will prevent some harm from happening and will make it easier for us to act quickly and assertively when we spot new problems.”
6 July 2022: Struggling Households Must Seek Help – As Worse To Come
Households struggling financially as a result of the deepening cost of living crisis, are failing to seek available support due to lack of understanding or feelings of embarrassment.
Worry, shame and fear
According to a report published today by the financial regulator, the Financial Conduct Authority (FCA) and MoneyHelper, a government-back online advice service, 42% of borrowers who had ignored their lenders’ attempt to contact them had done so because they felt ‘ashamed’.
It also found that two-in-five (40%) people who were struggling financially mistakenly thought that talking to a debt advisor would negatively impact their credit file.
Other reasons for failing to address financial problems included doubts about the value of contacting lenders, with 20% believing it would not be of any help, and negative perceptions about the potential outcome – with 18% worried about losing access to existing credit and 16% worried about gaining access to credit in the future.
The FCA urged consumers who are struggling to keep on top of their finances to contact lenders to discuss available options, such as a potential payment plan – and to seek free advice from MoneyHelper.
More than half (52%) of borrowers in financial difficulty waited more than a month before seeking help and, of these, 53% regretted not doing it sooner.
Sheldon Mills, executive director of consumers and competition at the FCA, commented, “Anyone can find themselves in financial difficulty, and the rising cost of living means more people will struggle to make ends meet.
“If you’re struggling financially the most important thing is to speak to someone. If you’re worried about keeping up with payments, talk to your lender as soon as possible, as they could offer affordable options to pay back what is owed.”
The FCA’s advice has coincided with a Bank of England report, also published today, which warns that people with high levels of debt will find themselves ‘most exposed’ to further price rises of essential goods such as food and energy – especially if costs continue to climb quicker than expected, or it becomes more difficult to borrow.
It points the blame largely at Russia’s illegal invasion of Ukraine; both countries produce significant proportions of the world’s wheat supply, along with other staples such as vegetable oil, resulting in high food prices and high levels of volatility in the commodity markets.
The Bank said that ‘like other central banks around the world’ it has increased interest rates to help slow down price rises. However, costs are still soaring with annual inflation – 9.1% for May – at the highest level for 40 years.
Combined with tightening borrowing conditions, repaying or refinancing outstanding debt will become harder, said the Bank. It expects households and businesses to become further stretched in the next few months, while being ‘vulnerable to further shocks’.
Both reports land against the backdrop of a political crisis in which two of the Government’s most senior cabinet members – the Chancellor of the Exchequer, Rishi Sunak and Health Secretary, Sajid Javid – both resigned over lack of faith in the Government’s leadership.
Former education secretary, Nadhim Zahawi has now taken up the reins as Chancellor but will inherit ongoing problems including soaring petrol, energy and food prices as well as the plummeting value of the pound.