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In February 2021, the FCA issued its annual Consumer Investments Data Review for 2020. It summarises the regulator’s work to tackle consumer harm in the investment market between 1 January and 31 October 2020.

In addition, the FCA’s Call for Input on Consumer Investments closed on 15 December 2020; the regulator will be using the feedback received to shape its work over the next three years. Reducing harm in the consumer investment market was identified as a business priority for the next three years in the FCA’s 2020/21 Business Plan and will continue to be a major focus.

What has happened?

We have analysed the Data Review and extracted the key consumer conduct risks for firms. These are set out below.

• Between 1 January 2020 and 31 October 2020, 3,885 firms and individuals applied for authorisation in the consumer investments market. Of these, four firms had their application rejected, and a further 339 firms and individuals withdrew because they could not demonstrate that they could meet the standards required. This represents almost one in ten applications.
• During the period, 131 firms had their authorisation revoked because of breaches of the Threshold Conditions.
• During the period, the FCA prevented twelve advice firms from gaining authorisation where phoenixing was suspected. In all those cases, the firm withdrew its application when the FCA raised concerns rather than be taken through the refusal process. In two other cases where the FCA suspected phoenixing, conditions were placed on the approval of the firms to ensure that the new firm could not be used to facilitate the avoidance of liabilities.
• 1,542 supervisory cases were opened involving scams or higher risk investments¹ during the period. New cases remained at a high level throughout the year and peaked in the months of February, June and July 2020. During this period, 1,042 cases were closed. Of these, 68% were closed in supervision following investigation, 19% were referred to other parts of the FCA (including enforcement) or other agencies (including law enforcement agencies) for ongoing investigation, and 13% were closed following regulatory action.

¹   these are defined by the FCA as;

• • mini-bonds (also known as high interest returning bonds) and other non-readily realisable securities,
  • unregulated collective investment schemes (UCIS),
  • some structured products, derivatives and Contracts for Difference (CFDs),
  • Venture Capital Trusts (VCTs),
  • exchange tokens or cryptocurrencies,
  • investment-based crowdfunding, and
  • peer-to-peer lending

• Since the FCA introduced the Temporary Product Intervention (TPI) on the marketing of speculative illiquid securities to retail investors at the beginning of 2020, firms have increasingly used the Financial Promotion Order (FPI) exemptions. Before the TPI was introduced, approximately 20% of the websites reviewed had been approved by an authorised person; however, between January and August 2020 this only applied to 3% of the websites reviewed. Since August 2020 this figure dropped to almost 0%. Most websites the FCA looks at fail to meet the relevant requirements for the FPI exemptions to apply. These failings mean there is a risk that retail investors may access inappropriate higher risk and, potentially, scam investments.
• The FCA finalised enforcement action against one firm and five individuals in 2020. In 2019, it finalised action against four individuals. It also decided to act against a further five individuals and three firms. However, in five of those cases, the decision has been referred to the Upper Tribunal, which will determine the appropriate action. From 2019 to 2020, the FCA fined or decided to fine, the subjects of its investigations more than £80m.
• The FCA’s Enforcement and Supervision departments worked together in 2020 to persuade twelve firms to agree voluntarily through the imposition of requirements (known as a VREQ) to restrict their activities in relation to the promotion and distribution of mini-bonds, CFDs and other investments.

How can we help you?

If you’d like to know more about how we can help you with your FCA authorisation application or conduct risk approach, or any other aspect of FCA compliance, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.