FCA prevents one in five firms from entering the consumer investments market

Restrictions on consumer investment firms double year on year as UK regulator flexes muscles.

Twice as many firms had restrictions placed on them by the UK Financial Conduct Authority (FCA) between April 2021 and March 2022 compared to the previous year as the regulator stepped up consumer protection efforts.

Some of the restrictions on firms wanting to enter the consumer investment market included the selling of certain products or services, such as giving advice on defined benefit pension transfers.

“In the last year we have maintained our focus on acting assertively and innovatively to tackle harm – we prevented 1 in 5 firms from entering the consumer investments market and we have taken action against unauthorised firms with a 40% increase in the number of consumer alerts issued. Setting high standards and acting quickly to crack down on problem firms will help ensure market and consumer confidence, supporting the integrity and growth of UK financial services”, said Sarah Pritchard, Executive Director of Markets at the FCA.

Phoenixing and lifeboating

The FCA also suspected phoenixing and/or lifeboating by 17 firms and seven individuals, and stopped them from getting authorization to enter the investment market. Phoenixing and lifeboating are where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to or setting up a new firm and therefore avoiding the liabilities of the old firm.  

The FCA also stopped the UK operations of 16 Contracts for Difference providers which had entered the UK’s temporary permissions regime in 2021. The FCA estimates that without its actions, consumers could have lost around £100m ($112.6m) a year.

This work is a part of the FCA’s updated Consumer Investments strategy, which aims to reduce possible risks products and investment scams in the market. These actions are also aligned with the key commitments in FCA’s wider three-year strategy.

Sarah Pritchard, FCA. Photo: FCA

“We want to see a consumer investment market where consumers can invest with confidence, understanding the level of risk they are taking, and where assertive action is taken when harm is identified. We know that it will take time to see the full impact of all our interventions, particularly given the worsening economic environment, but have committed to update each year on the progress that is being made”, said Pritchard.

Over 1,800 consumer alerts

Besides acting more assertively towards firms that are not meeting the FCA’s expectations, the FCA is:  

  • Taking a harder line in relation to the Authorisations gateway, to stop firms that may cause harm from entering the market. In 2021/22, one in five applications from firms that wanted to join the consumer investment market were either not approved or withdrawn.
  • Sending out more alerts to warn consumers of risks. Last year, the FCA published over 1,800 consumer alerts about unauthorised firms or individuals last year, which was 40% more than the previous year.   
  • Boosting the campaigns ScamSmart and InvestSmart, in order to reach millions of consumers. Last year, 59% more consumers used ScamSmart to help them avoid scams.
  • Working towards tackling online fraud, and is scanning 100,000 websites every day.

Besides introducing new rules to protect consumers from harm and strengthening financial promotions rules, the FCA has also established the Consumer Duty guidance over the last year. The FCA is also to consult on a more proportionate advice regime for investing in stocks and shares ISAs, with the intention of conducting a holistic review of the boundary between advice and guidance.