In a report issued today the Financial Conduct Authority (FCA) highlights the many ways in which it works to protect consumers from investment harm by stopping and disrupting potentially harmful firms and activities. The report focuses on action taken by the FCA during the first ten months of 2020, when many consumers found their finances under pressure as a result of coronavirus lockdowns and restrictions.
During this ten-month period the FCA:
- stopped applications for authorisation from 358* financial services firms and individuals, where the potential for consumer harm was identified - almost one in ten applications
- opened over 1,500 supervisory cases involving scams or higher risk investments
- received over 24,000 reports of unauthorised activity and published over 1,000 consumer alerts – an 82% increase on the previous year
The FCA also takes action against firms found to have caused consumer harm. This includes:
- pursuing 47 enforcement investigations against unauthorised businesses in 2020, securing almost £6m to be returned to consumers and obtaining court orders ordering that over £14m be returned to consumers which the FCA will take steps to recover
- issuing fines totalling more than £80m to regulated firms and individuals over the course of 2019 and 2020
The FCA is also publishing data on the Defined Benefit (DB) pension transfers market. This market is particularly susceptible to consumer harm and has been a focus for the FCA. As a result of action taken by the FCA in 2020, 130 firms stopped providing DB transfer advice. The proportion of pension scheme members who are recommended to transfer following advice has fallen from an average of 69% in October 2018 to 57% in March 2020.
To reduce the risk of harm to consumers, the FCA is also calling upon financial services firms to ‘use it or lose it’, with regard to using all of their regulatory permissions. A firm’s business model may evolve over time. When it does, it’s crucial that firms notify the FCA and amend regulatory permissions as necessary. Firms that don’t risk losing market access. Outdated or incorrect permissions can mislead consumers about the level of protection offered or give credibility to unregulated activities.
Commenting on the release of today’s report, Sheldon Mills, Executive Director, Consumers and Competition said:
'The UK has one of the world’s leading financial services industries, offering consumers access to a wide range of investment products. In some areas however, the consumer investment market is not working as well as it should and too often consumers are offered unsuitable products or advice. Protecting consumers and ensuring they have confidence in the suitability of advice they receive is a key priority for the FCA and today’s report highlights some of the work we are undertaking to achieve this.
'Incorrect or out of date permissions increase the risk of harm to consumers as they can mislead consumers about the level of protection offered or give credibility to unregulated activities. This is why we’re today calling on firms to review their permissions and ensure they reflect current business models. We will take action where we consider out of date permissions may cause harm to consumers. The message is clear, use it or lose it.'
Today, the FCA is launching the next phase of its ScamSmart Investment campaign. This will warn consumers of the increased threat of clone investment fraud, alerting them to the key warning signs and driving investors to the FCA’s warning list of firms to avoid and the FCA register of authorised firms. The ScamSmart campaign was launched in 2014 to arm consumers with the knowledge and tools to help prevent them falling victim to investment and pension scams.
The FCA also recently issued a Call for Input on the consumer investment market, asking for comment on how consumer protection can be improved. Responses to this are under review and the FCA has already acted to ban the mass-marketing of speculative illiquid securities (including speculative mini-bonds) to retail investors.
*On 13 July we announced that we have revised our figures on the total number of applications for authorisation that we stopped from 343 to 358.