Recommendation 11

HM Government · verbatim extract Not Addressed

We agree with the Committee that it is important to do as much as we can to ensure consumers are aware of the risks associated with unregulated activities and are able to make informed judgements. Our rules and expectations Firms must consider the information needs of customers and communicate with them in a way which is clear, fair and not misleading. This includes ensuring that the information they give retail customers about investments is accurate and does not emphasise potential benefits without also giving a fair and prominent indication of the risks. Under existing FCA rules, the use of our logo by firms is generally prohibited. Firms also have a duty not to imply that they are authorised, regulated or supervised for something for which they are not. In addition, a firm needs to ensure that any financial promotion which names the FCA (or PRA) as its regulator makes clear that any unregulated matters are clearly identified as such. We will continue to consider whether further rule changes are required in order to prevent consumers from getting a misleading impression about the regulatory protections from which they benefit. This will be informed by the responses we receive to the questions about risk warnings in our Discussion Paper11 ‘Strengthening our financial promotion rules for high-risk investments and for firms approving financial promotions’. We set out more detail on our interventions in relation to financial promotions in our response to recommendation 16 below. Consumer engagement and understanding We are also enhancing our approach to consumer engagement. This includes working with our regulatory partners (FSCS, the Ombudsman Service, MaPS and TPR) to help clarify and define our respective roles with consumers; collaborating more effectively to make it easier to engage with us; and in particular, looking at how best to help consumers understand protections. We are undertaking research and consumer journey mapping to inform our communications. To date, the FSCS has launched a protection checker tool12 on its website, and we link to the FSCS from our website. Firms have a clear responsibility too—we have a warning banner on the Financial Services Register about unregulated activities, which appears at the top of every firm’s record, putting the onus on firms to clarify in writing whether protections will apply. Our research will help us to better understand consumers’ awareness and expectations of financial regulation and protections, and how these influence their behaviour when using financial services. We will develop better insight into how consumers respond to, and how their behaviour is influenced by, statements that a firm is “authorised and regulated” and references to protections such as those afforded by the FSCS and Ombudsman Service. We will also explore consumers’ views on the information they receive from firms, which have a responsibility to make it clear to consumers whether activities are regulated or not. This research will inform our approach to consumer engagement and information, and we will apply insights from it into our work on the new Consumer Duty13 which we are consulting on. In our business plan this year, we have said we will: • Improve the information that we publish for consumers. This will include clearer explanations of what it means for a firm to state that it is ‘authorised and regulated by the FCA’ and where regulatory protections may or may not apply. We will also explain why we are making rule changes and what they mean for consumers as they happen. • Use proactive communications to improve consumers’ understanding of risk. This year, we will launch a new multi-year Investment Harms campaign. We will target new, less experienced investors tempted into taking higher risks than they realise when investing online. • Publish more data about firms to help inform consumers and influence firms’ conduct. This will include regulatory data that we have not shared before, and Financial Ombudsman Service complaint and uphold rates. Our work to tackle consumer harm We are also taking action to address some of the challenges caused by the ‘halo effect’ that Dame Elizabeth highlighted in her report. Under our “Use it or Lose it” exercise announced in December last year, we will act to remove permissions for regulated activities that appear to us as not being actively used, and where the FCA considers out-of-date permissions may cause harm to consumers. Our “Use it or Lose it” exercise is identifying and contacting firms that are not conducting regulated activity, asking those firms to verify their position, and, where appropriate, to apply to cancel unused permissions. Firms that do not cooperate will be subject to enforcement action, which may result in their permissions being cancelled by using the FCA’s own-initiative powers. These outcomes will be published. In addition, we have introduced a new holistic approach to higher-risk firms that are applying for FCA authorisation. This will include a more detailed review of unregulated activity that is financial in nature (and could lead to consumer confusion as to whether products are regulated or not), a more detailed review of financial information, and a more detailed check for indicators of fraud. Where we identify concerns with any of these areas, we will take a more assertive approach and either encourage the firm to withdraw and improve their application (where we consider the firm is not ready, willing or organised) or look to proceed to a refusal decision where we have more significant concerns. A new framework has been created for assessing these areas, and more training for case officers will be rolled out over the summer.