The Personal Investment Management & Financial Advice Association (Pimfa) has urged the UK government to tighten the rules around the promotion of unregulated financial products.
It said that the practice should become a regulated activity and fall under the Financial Conduct Authority’s (FCA) remit.
One of the most recent scandals in this sector is London Capital & Finance (LCF), where over 11,600 retail investors were mis-sold £237m ($307m, €260m) in mini-bonds through the unregulated marketing of such products.
In its response to HM Treasury’s consultation on the approval of financial promotion, Pimfa said that the issue could not be any more time sensitive, as many consumers will be attracted by investments that offer very high returns, in a low-interest market that has weakened by the pandemic.
If the government was to make the promotion of financial products a regulated activity, this would give the FCA the ability to take action against firms that greenlighted the marketing of unsuitable investments “without the necessary expertise or due diligence”, the trade body added.
‘Easy win’
Simon Harrington, senior policy adviser at Pimfa, said: “Given the potential for harm for consumers, and the cost that then falls onto firms in funding the Financial Services Compensation Scheme (FSCS), we believe that it is right that a gateway is introduced for the approval of financial promotions.
“However, as a result of the experience of many of Pimfa’s member firms of being regulated, we retain very little confidence that the level of regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes is not sufficient and conducive to consumer harm.
“Making the approval of financial promotions a regulated activity would mean the FCA could take enforcement action against those firms that approve unsuitable investments without having the necessary expertise to do so.
“This will improve the market; reduce consumer harm and ultimately reduce calls on the FSCS where rising levies over the last five years have become unsustainable for Pimfa members.
“This is an easy win for all parties involved and we are urging them to grasp this opportunity,” he added.
