FCA Finalises Tighter Rules for Ads Promoting High-risk Assets

Key Insights:

• The FCA is demanding clearer and more prominent risk warnings from companies marketing high-risk investments. 
• The regulator has been working with the Advertising Standards Authority on a ‘red alert’ crackdown. 
• Certain investment incentives, such as the refer a friend bonus, are banned altogether. 

The Financial Conduct Authority (FCA), a body responsible for regulating around 50,000 financial services firms within the UK’s financial markets, is clamping down on misleading advertisements that encourage people to invest in riskier products.

More specifically, the watchdog demands clearer and more prominent risk warnings from companies marketing high-risk investments.

High-risk Assets

The priority for the FCA, which has been working with the Advertising Standards Authority (ASA) on a ‘red alert’ crackdown, is to reduce the number of people investing in high-risk products as it claims a “significant number” of individuals don’t understand the risks involved. The statement read:

“These new rules build upon the FCA’s more assertive and interventionist approach to tackling poor financial promotions, reducing the potential for unexpected consumer losses”.

The stronger rules are aimed at tackling misleading adverts that have the potential to cause consumer harm, but the new guidelines will not apply to crypto promotions.

Certain investment incentives, such as the refer a friend bonus, will be banned altogether.

Intervention

Under the new rules, firms approving and issuing marketing must have “appropriate expertise” and companies that market some types of high-risk investments will need to “conduct better checks” to ensure consumers and their investments are “well matched”.

While crypto assets are exempt from the new rules, the FCA plans to establish its final rules on crypto promotion once the UK government confirms that such assets are in the regulator’s remit.

Nonetheless, since the FCA’s statement qualifies crypto as a high-risk asset, it is expected that future rules will likely resemble the guidelines that have currently been drawn up. What’s more, the watchdog has called for feedback on the new rules to be provided by October 10, 2022, with the final draft set to be released early next year.

Overall, since the start of the year, 4226 adverts have been amended or withdrawn after intervention from the FCA.

What’s more, in March this year, the FCA announced that it had opened more than 300 cases into unregistered crypto firms, while the Advertising Standards Authority issued enforcement notices to over 50 companies that advertise cryptocurrencies, instructing them to review their ads.

The ASA has identified crypto ads as a “red alert” priority and has been increasing its capacity to track them online using technology like scraping and artificial intelligence (AI). The independent advertising regulator is also working with big tech platforms to get scam adverts taken down as part of a separate effort.