FCA to consult on stocks and shares ISA advice rules

The regulator said it would first consult on investment ISAs and their related advice regulations and then follow with a holistic review of the boundary between advice and guidance.  

The consultations were previously confirmed at the FCA public meeting last week.

The commitments were part of the regulator’s consumer investments strategy update and data review released today (18 October).

It also highlighted it had, as part of its strategy designed to prevent harm in the consumer investment market, placed restrictions on twice as many firms in the investment market compared to last year.

It said its restrictions included preventing firms from promoting and selling certain products or providing specific services like advice on defined benefit pension transfers.  

The FCA said it had stopped 17 firms and seven individuals attempting to obtain a new FCA authorisation in the investment market where phoenixing or lifeboating was suspected.

It explained phoenixing or lifeboating was where firms or individuals try to avoid the consequences of having provided unsuitable advice by moving to or setting up a new firm.  

The FCA also stopped the UK operations of 16 Contracts for Difference providers, that had entered the UK’s temporary permissions regime in 2021, where suspected scam activity was detected, or consumers were encouraged to trade excessively to generate revenue.

“Without FCA action consumers could have lost around £100m a year,” it added.

Executive director of markets Sarah Pritchard said: “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.”

She added that in the last year the focus has been on “acting assertively and innovatively to tackle harm” and in doing so, prevented one in five 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”.

Pritchard continued: “”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.” 

AJ Bell head of retirement policy Tom Selby said: “Recent events have exposed some pretty fundamental and dangerous misunderstandings about the risks associated with different kinds of pensions.

“Problems with a specific type of investment held in defined benefit pensions have sparked fear and panic about entirely unrelated financial issues. Callers to radio phone-ins have been confused about whether or not they might lose their entire pension, for example, while others were shocked to find that their retirement pot was invested and could go down as well as up.”

He said both savers and investors “are clearly crying out for help, but at the moment lack of clarity over the advice/guidance boundary is holding firms back when communicating with customers”.

According to him there needed to be a “reset [on] the  relationship between industry and regulation” driven by a “clear focus on ensuring good outcomes for consumers, in line with the core aim of the Consumer Duty”.

He added: “Full-fat advice remains the gold standard, and we need to encourage as many people as possible to take this route. But we know lots of people cannot afford such advice, or simply choose not to take it.”

Selby said that if a simplified advice model can boost the number of people taking regulated advice “that would be a good thing” but he thought it was unlikely many people would be willing to pay even the relatively lower fee. 

“Focus therefore needs to be trained on ensuring firms communicating with customers are able to help people make better decisions,” he said.

“This is not about pushing back the advice/guidance boundary, but instead being clearer about exactly where that boundary sits. At the moment, non-advised platforms, employers and others are held back by a fear of straying into advice.”

Selby added: “We hope the FCA’s review of the advice/guidance boundary moves at a rapid pace and considers solutions that meet the scale of the challenge. Given how hard-set the status quo has become, there is a strong argument for the Treasury leading reform which gives firms the confidence to communicate with customers in a more meaningful, effective way. But finding a way through the impasse needs to be viewed as a priority and we need a specific timetable for delivering workable solutions.”