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The Financial Conduct Authority has issued a consultation on new rules

The Financial Conduct Authority has issued a consultation on new rules aimed at reducing the ease and speed with which high-risk investments can be made.

The proposed rules would improve risk warnings on advertisements, prohibit incentives such as new joiner or refer-a-friend bonuses, and ensure that firms approving financial marketing have the necessary expertise and understanding.

Laura Suter, AJ Bell's head of personal finance, described the move as an effort to "make it harder for novice investors to sleepwalk into buying high-risk investments."

"There has been a boom in people investing during the pandemic, and in turn there has also been a steep rise in the number of newcomer investors putting their money in high-risk, inappropriate investments," she stated.

"The regulator admits that it will not be able to stop every low-risk or vulnerable customer from buying inappropriate investments."

"Instead, in the next three years, the FCA's aim is to halve the number of people investing in high-risk assets who have a low risk tolerance or who are vulnerable."

While there is "nothing necessarily wrong with high-risk investments," Nathan Long, senior analyst at Hargreaves Lansdown, believes that investors should understand the risks before committing capital.

"Having sufficient time to invest, enough cash set aside for a rainy day and ensuring the high-risk investments are a sensibly sized part of their long-term portfolio are all important considerations," he added.

While cryptocurrencies have recently made headlines, especially since the UK government announced on the 18th of January that advertising the asset class would be brought under the FCA's jurisdiction, the new rules apply to a much broader range of investments.

Mini-bonds, peer-to-peer lending, crowdfunding, non-readily realisable securities, and non-mainstream pooled investments would all be subject to the new rules, according to the proposals.

Long-term asset funds have been largely excluded from the new proposals in order to avoid rule duplication when the regulator issues its response to the recent model consultation later this year.

The FCA's executive director of markets, Sarah Pritchard, said: "Too many people are being led to invest in products they do not understand, and which are too risky for them."

"People need clear, fair information and proper risk warnings if they are to invest with confidence, which is the central aim of our consumer investment strategy."


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