- Over 1 million UK adults increased their holdings in high-risk products like crypto or crowd funding investments in the first 7 months of the pandemic.
- FCA research used behavioural insights to show how red alerts on a promotional page can sharply increase knowledge of risk.
- Simple check point criteria to self-certify resilience, time delays and evidence requests can nudge vulnerable consumers away from hasty high risk decisions.
The FCA has published research into how consumers can be made more aware of pitfalls of high risk investments: Beyond disclosure for high-risk investments: slow down and think | FCA
Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown:
“The boom of high risk investing is causing huge nervousness among regulators, with the Financial Conduct Authority increasingly concerned that vulnerable consumers are being swept up in a frenzy of speculation. The FOMO effect which took hold during the pandemic, has been drawing more people into the murky world of crypto investments and almost half still don’t understand the risks involved.
The FCA has estimated that a million UK adults, 6% of all UK investors, increased their holdings in high-risk products or bought new high risk assets during just the first 7 months of the pandemic. This is particularly worrying as it came at a time of increased consumer vulnerability and if they had invested in crypto, they would have seen the value of their holdings plunge dramatically in the last few months. Now, with the cost of living squeeze intensifying, the focus should instead be on ensuring consumers have a resilient pile of savings and lower risk investments to fall back on. There is woeful knowledge about the financial dangers of investing in high-risk products, which include investment based crowdfunding, with 45% of investors not aware that losing some money was potentially a hazard.
It’s clear that education needs to be sharpened up pretty pronto – with so many vulnerable consumers being lured in, and it’s very welcome that crypto assets will soon fall under the FCA’s watch as part of new legislation. There are big pointers in this latest research indicating the depth of warnings which may become a legal requirement under the new regime, as part of the FCA’s aim to persuade consumers to slow down and think before handing over hard earned cash. Researchers used behavioural insights to show how red alerts on a page can sharply increase knowledge of risk. They also highlight how simple check-point criteria to self-certify resilience, time delays and evidence requests can help reality to dawn and nudge vulnerable consumers away from hasty ill thought through decisions.
Assuming these proposals come are brought it, they will significantly sharpen decision making and shift investing behaviour so that many more consumers take a deep breath before jumping into high risk deep waters, and only paddle in at the edge of their portfolios.”