In August 2022, the regulator published a 205-page policy document outlining its proposals to strengthen its financial promotion rules for restricted mass market investments (RMMIs) and firms approving financial promotions.
The proposals were set to provide access to non‑traditional investments, such as Long-Term Asset funds (LTAFs), while still offering strong consumer protection by ensuring that firms communicating and approving financial promotions for these investments do so to a "high standard".
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The initial rules, which required risk warnings on financial promotions, went live on 1 December 2022, with the remaining rules effective from 1 February 2023.
Since full rules went live, the FCA has reviewed the levels of compliance of a sample of 13 firms, with a focus on the five conditions set out in the rules: incentives to invest, cooling off period, risk warnings, client categorisation and appropriateness.
Under ‘incentives to invest', the rules prohibit firms from communicating or approving a financial promotion that offers any monetary or non-monetary incentive to invest in HRIs, such as referral bonuses, free gifts or cashback to consumers for investing.
The regulator found that most firms reviewed had withdrawn any incentives to invest before the remaining rules went live, and, in many cases, these incentives had been wound down up to six months in advance of the deadline.
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However, it also found that some firms did not properly consider the full range of incentives offered by them against the ban, particularly those that were not paid immediately on sign-up or that did not require a consumer to invest to qualify.
The rules also introduced a minimum 24-hour cooling-off period to allow consumers to reflect on the investment and determine whether they wished to proceed.
In its review, the FCA found all firms had implemented the cooling-off period before consumers were able to view any direct offer financial promotions, or commit to any investments.
However, it noted that multiple firms did not give consumers the express option to proceed with or leave the investment journey at the end of the cooling-off period, or gave greater prominence to the option to proceed, compared to the option to leave.
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The FCA also found that although most firms included the correctly worded risk warning within their financial promotions, these did not always meet its expectations for prominence.
The regulator said it heard from multiple firms that said marketing teams did not agree with the prominence of risk warnings, as this would put off potential investors, but added that it was "prepared to take robust action with firms that do not comply with our requirements".
In terms of categorisation, the FCA said most of the firms reviewed had implemented a robust process for ensuring consumers were able to self-categorise appropriately, with some even going beyond the requirements.
However, it also saw some examples of renaming the categories or describing them in a way that downplays the risks of investing, as well as instances where firms were guiding consumers through the process by indicating the information that the consumer needed to give to proceed.
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Finally, the regulator found that aspects of some firms' appropriateness assessments appeared to be designed to ensure consumers pass, which it said undermined the purpose of the assessment.
"We found some firms' assessments used a significant proportion of binary questions, and others included clearly implausible answers in multiple choice questions," it said.
"As a result, we felt these assessments would not adequately show the appropriateness of the product for their customers."
The FCA said it expects firms offering RMMIs to retail clients to consider these examples and any changes they need to make to their practices to meet its expectations and "improve consumer outcomes".