We set out some of the common aims our forthcoming consumer investments policy initiatives will work towards.
We want consumers of all wealth levels to be able to make good investment decisions. We want people to invest with confidence, understanding the risks and the protection involved.
For many consumers this is a sector that works well. Millions of UK consumers invest effectively, making well-informed decisions that help them increase their wealth and save for later life. But this is not true for all consumers. Many struggle to engage with investments or to make decisions that are right for their situation. We want to maintain the positive elements of today’s consumer investments sector as we continue to make improvements.
A well-functioning consumer investments sector will also support capital raising, investment, innovation and job growth in the real economy, driving wider economic growth that can benefit everyone.
These aims are a continuation of the vision for the consumer investments sector we set out in our Consumer Investments Strategy (CIS) two years ago. Since then, our work delivering on the CIS has focused on improving standards across the sector, tackling problem firms in the areas we have seen the most consumer harm.
Under the Treasury’s (HMT’s) Smarter Regulatory Framework (SRF), the FCA will have increased rule-making powers over areas that currently sit within retained EU law. This gives us the opportunity to build on the work done to improve standards and develop a more cohesive regulatory framework for the consumer investments sector that delivers good outcomes for consumers.
Regulatory changes can only be effective if they are coherent and focused. We are therefore setting out our view of the core features of the sector and how they need to work for the sector to collectively function well. Our forthcoming reforms to the regulatory framework will work towards improving these and we will consult, engaging with industry and consumer stakeholder groups and our statutory panels, when we do so.
On 31 July this year, the Consumer Duty (the Duty) came into force for products and services that are open for sale or renewal. The Duty sets higher standards and requires firms to act to deliver good outcomes for retail customers. The Duty underpins all our work across this sector. We will ensure all rule changes across consumer investments complement the standards set out under the Duty and support firms in fulfilling their obligations.
We recognise that the pipeline of initiatives, which are outlined in the Regulatory Initiatives Grid, may have a significant impact on market participants against a challenging timescale, which we will be mindful of as we progress our work. This communication aims to outline the direction of travel for our consumer investments initiatives so that stakeholders can understand our strategy.
Core features of a well-functioning consumer investments sector
What we want to see in the consumer investments sector
To ensure consumers make the right investment decisions, we want them to get the help they want, when they need it, at an affordable cost.
Where decisions are straightforward, but consumers still want a helping hand, they should be able to access simple support to find investments that deliver good outcomes. For more complex circumstances, they should be able to access holistic financial advice at a transparent price that gives them the confidence to make effective decisions.
Our joint work with HMT on the Advice Guidance Boundary Review (AGBR) will explore potential changes to the regulatory framework to improve the provision of support to help consumers make more effective investment decisions. We will ensure any reforms align with other initiatives including the Consumer Duty, Pensions Dashboards, the Compensation Framework Review and disclosure reform and will consult fully on any proposed rule changes and new regulatory frameworks.
Diverse products and services
Risk appetite and capacity for loss differ from person to person. For each of us, our attitude to risk can also change depending on which area of our finances we are considering.
For example, a consumer’s appetite for risk may be low for most of their savings or their pension. These needs may be well served by low cost, diversified investment products.
But the same consumer may also have a greater risk appetite when it comes to a pot of money that they are willing to lose. Consumers who can understand the risks and absorb losses may want to invest a portion of their money in riskier products, if they believe this could potentially increase their return.
We want a market where consumers have access to a broad range of investments across the spectrum of risk. We also want to ensure proportionate protections help consumers find products that are right for their circumstances and risk tolerance. We want consumers’ needs to be met by regulated firms, minimising the influence of unregulated providers that don’t offer adequate consumer protection.
We see potential benefits from consumers with higher risk tolerances directly investing in public markets, including growth markets. This can benefit the consumer, but also have wider positive impact by helping support economic growth and increasing the attractiveness of UK markets. Our work on implementing a new regime for public offers and admissions to trading will consider how to facilitate appropriate retail access as we assess any potential changes to prospectus requirements.
Realistic approach to risk
There will always be uncertainty and risk when investing. Consumers deciding to invest need to know that they are taking a risk to achieve greater returns than a savings account may offer. They should only invest if they are comfortable with that, accepting responsibility if the value of their investments decreases.
Regulation should support consumers to distinguish between legitimate investment risk and fraudulent products. Consumers can only be expected to take responsibility where firms enable them to understand the features and risks of the products and services being offered, and the implications of any decisions. Our work needs to ensure that this is the case.
At times consumers will need additional protection. We are committed to building a regulatory framework that looks at the range of factors influencing investment risk. This means ensuring regulatory guardrails take account of the characteristics of the underlying product or service, the way it is distributed or sold to consumers, and the characteristics of the consumers who buy it. Regulatory design, such as level of access and appropriate degrees of positive friction in consumer journeys, should be informed by a rounded view of risk.
Consumers should have access to information to help them make good decisions. It should be proportionate to the complexity of the investment and the decision. This information should be given at the right point – making sure the consumer is not overloaded with information, and not put off.
Making sure firms communicate well with customers is central to our future policy work. Clear and timely communications are a key part of our work on reform of the advice market, replacing the packaged retail and insurance-based investment products regime (PRIIPs), and our development of the public offer platform regime. More broadly, this will also be key to the process of reviewing the conduct regime under the Markets in Financial Instruments Directive (MiFID).
We will increase flexibility of regulated disclosure, linking to the consumer understanding outcome of the Consumer Duty where possible, to ensure it is useful to consumers and still robust.
We have set out our vision for good disclosure, particularly through the replacement of PRIIPs and undertaking for collective investment in transferable securities (UCITS) disclosure documents. The new regime should be supportive, engaging, accessible and flexible. We have also published disclosure requirements with similar features for the consumer-facing disclosures under sustainability disclosure requirements (SDR).
We will work with stakeholders to build our knowledge of what works. We are working with industry to run field trials to explore effective points for engaging consumers with their pension, and alongside this publication have published the results from the first stage of this research. We will also use consumer research to inform any changes to the regulatory framework.
Consumer protection starts with firms treating customers fairly. We expect consumers to take responsibility for their own decisions, but investment products should be made available, marketed, and sold to consumers in a way that allows them to make informed choices.
Even where care has been taken to consider consumer needs, consumers may face situations where things go wrong. Therefore, there needs to be an appropriate and proportionate framework in place to put things right in these instances.
Firms should proactively identify where something has gone wrong and consumers have suffered harm. We expect firms to be able to meet liabilities and put consumers back into the position they ought to be in. For example, a key feature of the public offer platform is ensuring appropriate liability to ensure that consumers have access to redress where they suffer loss because of a firm’s failure to meet their obligations. We are also consulting on requirements for personal investment firms to set aside capital for potential redress liabilities at an early stage.
When something has gone wrong, firms are already required to clearly let consumers know how to complain. Firms must deal with any complaints fairly, consistently and promptly. We want consumers to have the confidence to complain and trust that their complaints will be resolved by the firm. If a satisfactory resolution is not achieved, the Financial Ombudsman Service is available.
Whilst we want firms to be adequately resourced to meet their liabilities, we do not run a zero-failure regime, and there may continue to be instances where firms fail while owing redress liabilities. In appropriate circumstances consumers should have recourse for compensation from the Financial Service Compensation Scheme (FSCS). The FSCS has never covered, nor should it cover, poor investment performance. Instead, it provides protection in certain circumstances where consumers can establish civil liability against a firm that is unable to pay redress owed to them. It is right that in appropriate circumstances consumers have such protection, although as we said in the Compensation Framework Review Feedback Statement, we remain open to exploring opportunities for changing the scope of that protection in the future.