The Financial Conduct Authority (FCA) has set out a suite of measures today to empower retail investment, reinforce wholesale markets and maintain the UK’s position as a world-leading financial centre.
With new rules for investment product information the FCA is playing its part to build a stronger investment culture, supporting firms to innovate and make investing more engaging for consumers. And the FCA is seeking views to make sure regulation supports consumers to invest with confidence.
Proposals to enhance how firms classify their clients will give confidence to firms when they deal with professional investors, drawing a line so wholesale markets can remain agile and innovative.
The regulator has worked closely with industry and consumer groups to deliver practical policy that moves the dial on risk.
Simon Walls, executive director of markets at the FCA, said:
“Today’s measures support investment risk culture right along the spectrum. They ensure that firms can compete to give retail customers material that informs and engages them. They also draw a brighter line for professional markets, defined by contracting parties, informed consent, and regulation that is proportionate to that.”
Making it easier for consumers to understand investments
In retail investment disclosures the FCA will make a decisive shift away from prescriptive and complex templates that consumers don’t find useful. This gives firms more freedom to put the consumer first, innovate and help their customers understand potential returns as well as costs and risks.
The FCA is also seeking views on how longer-term regulation can keep up with the evolving retail investment landscape and help shift the dial on risk appetite, to give consumers confidence to access investments that meet their needs and benefit from the potential returns.
Distinguishing between professional and retail
The FCA is setting a clearer boundary between retail and professional investors, allowing firms to deal with professional investors with confidence operating outside retail regulations. This will free up firms to innovate and offer a more diverse range of products to truly experienced clients with the resources to bear more the risks.
The threshold to qualify as a professional investor will remain high, so only those with experience, advice, or the ability to bear risk are taken out of retail protections, such as the Consumer Duty, that they don’t need. High standards in classification means ensures that wholesale regulation remains proportionate and firms are freed from unnecessary guardrails.
Proposals remove some arbitrary tests and give firms more responsibility to get it right. This includes a new way for wealthy and experienced individuals to opt out of retail protections and streamline how firms assess professional investors.
Experts have been reacting to the news below:
Responding to the FCA’s publication of the final rules for the new retail disclosure regime for Consumer Composite Investments (CCI), Jonathan Lipkin, Director for Policy, Strategy and Innovation at the Investment Association, said: “We welcome the publication of the final CCI rules as an important step forward in providing decision-useful information to retail investors in an increasingly digital world. Together with the introduction of Targeted Support and broader projects to empower investors announced as part of the Leeds Reform, these measures will help lay the foundation for a more vibrant and inclusive investment culture.
“On cost disclosure specifically, complex existing requirements have hampered good decision-making. The simplifications in the new CCI rules will significantly reset this important area of disclosure and provide information that can help customers make informed investment decisions while maintaining transparency and accountability.
“We look forward to working with industry and engaging with the regulator and other stakeholders on the successful delivery of these significant reforms.”
Richard Stone, Chief Executive of the Association of Investment Companies (AIC), said:
“This is a victory for common sense. The FCA has recognised the unique characteristics of investment companies. It’s excellent news for investment companies, their shareholders and consumers.
“We particularly welcome the FCA’s decision not to require other funds to pull through the costs of investment companies when investing in them. This removes a cloud that’s been hanging over the industry and returns the market to a pre-2021 ongoing charge figure that everyone used and understood. It’s particularly helpful for fund of funds managers whose products were made to look artificially expensive under the PRIIPs rules.
“Investment companies have a huge amount to offer to all investors but investment from fund of fund investors, wealth managers and others has been impacted by the current cost disclosure requirements. Bringing an end to the double counting, recognising that investors’ returns are based on the share price and acknowledging the unique characteristics of the sector are all to be welcomed.
“The FCA has also confirmed that the costs of gearing and maintaining real assets will not be included in the ongoing charge, making investment companies’ headline cost disclosures more useful for investors. It’s good to see that investment companies will have the same implementation timetable as other funds and flexibility to adopt the rules earlier.
“The whole industry has pulled together to get this outcome and we’d like to thank everyone who has campaigned so tirelessly to get these disclosures right for consumers.
“It’s essential that we build an investment culture in the UK. In addition to the improved consumer disclosures, the FCA’s discussion paper on expanding consumer access to investments, also published today, shows their willingness to play a positive role.”
Mandy Rawlinson, Head of UK & EMEA, Aberdeen Investments, says:
“This is a major regulatory development post Brexit, and is effectively the FCA deviating from EU disclosure rules and implementing its own. The reforms bring genuine benefits, reduced reporting burdens, removal of contentious cost components, and the opportunity to design more effective customer communications. But they also introduce new obligations that will increase complexity and cost for global asset managers. It is a constructive step for the UK market, but one that international firms must carefully plan for.”
Commenting on the news, Sophie Legrand-Green, Head of Policy at TISA, said:
“For years, people have had to wade through dense, technical documents that overwhelm rather than inform. The FCA’s emphasis here on simpler, more engaging information for consumers is a very positive step and should give firms the flexibility to design communications that work for all of their customers.
If firms use this freedom to provide clear, balanced messages on risk and return, more consumers will be able to navigate investment decisions, making it easier to recognise when investing could better support long-term goals or understand the impact of leaving their money in cash savings.
TISA stands ready to work with the FCA and the industry to support efforts to build a more accessible, inclusive investment culture, and ensure communications translate into better outcomes for all.”
Martina Keane, EY UK and Ireland Financial Services Leader comments:
“Today’s FCA investment package to support economic growth is welcome and timely. The Chancellor set a goal to boost UK consumer and business investment in the Autumn Budget, and today’s announcement outlines the FCA’s intended measures to help make it a reality. By simplifying retail disclosures, marking clear boundaries for professional investors, and introducing regulations for firms to provide targeted, accessible support, material changes can be made to investment culture. With appropriate next steps in place, more UK consumers can share in the benefits of economic growth and UK firms can stay competitive in a challenging market.
“Our recent EY UK Attractiveness Survey shows that while the UK continues to hold the top spot as Europe’s most attractive destination for financial services investment, the levels of investment have dipped, and competition is fierce*. Initiatives like this package are a positive signal that industry, regulators and Government are moving in the direction needed to make sure the UK remains a leading destination for investment, and that it grows in attractiveness on the global stage.
“Financial firms now need to review the materials in detail to understand the opportunities presented for them to implement changes in a way that will support customers and individual growth strategies.”
Barry Cook, interim proposition director at Quilter, comments:
“Today’s policy blitz from the FCA on its measures to help boost the UK’s investment culture should be welcomed. While more technical in nature compared to other initiatives in this direction, these reforms should deliver meaningful benefits for both consumers and providers.
“For too long providers have issued lengthy, jargon-heavy documents that discourage engagement with key investment information. This creates friction in the customer journey. As such, it is encouraging to see the FCA look to move towards a regime that allows providers greater flexibility to produce engaging product summaries. This innovation should improve customer understanding and reward firms that prioritise clarity and customer outcomes.
“The FCA’s recognition that professional investors and ultra-high-net-worth clients require different protections than retail investors is also significant. There is a push to widen the investible universe for clients, particularly around private markets, but this will only succeed if regulation reflects the investors’ ability to take on greater risk. Updating definitions alongside creating more bespoke regulation for particular cohorts should help people take positive action in their investment journey, and unlock new avenues for capital allocation.
“Importantly these changes challenge how we perceive risk. Risk should not be seen solely as a negative – far too many people in this country are either not investing or investing too cautiously for their needs and as such wealth creation is being left on the table. The FCA clearly recognises the need to wean the nation off cash savings for the long-term and into investments that suit the customer’s long-term objectives.
“With these changes coming into force following the government backed investment campaign and introduction of targeted support, there is real momentum taking shape that could just help deliver the change in investment culture we need.”
Hugh Fairclough, partner and head of financial services at RSM UK said:
“This is positive news for professional investors, bringing more opportunities through loosening of restrictions. This could unlock capital for high growth sectors, including private markets and innovative technologies. It will also improve the UK’s competitiveness as an attractive place to raise capital, with these reforms simplifying listing regimes and reducing regulatory complexity. Streamlining rules for bonds, derivatives and prospectuses will also reduce compliance burdens and improve market efficiency.
“For consumers, a more dynamic market can lead to more innovative products, and potentially improve returns for retail investors, through broader economic growth. The FCA stresses that retail clients will still have strong safeguards, and changes will focus on those with the knowledge and resources to manage risk.”
Emma Wall, Chief Investment Strategist, Hargreaves Lansdown, commented:
“We welcome the reforms today announced by the FCA to support a better British investment culture. The risk reforms, simplified disclosures and changes to the professional investor classification build on the Leeds Reforms announced by the Chancellor in July, which aim to make the UK the number one place for financial services firms to do business, attracting investment, boosting growth and creating jobs. They also follow the focus in last month’s Budget on encouraging greater investing – including British investment hubs and a three-year stamp duty holiday on new listings on the London Stock Exchange. Investment hubs, to be featured on investment platforms and major banks, have Hargreaves Lansdown full support. The hubs, alongside the three-year stamp duty holiday for new listings on the London Stock Exchange, which was also announced in the Budget, should help boost interest in UK-listed investments.”
Jonathan Parry, a Partner in the Capital Markets group of global law firm White & Case LLP, commented:
“This is another step in the right direction from the FCA that will add to the growing momentum in London’s IPO market, which is benefitting from the regulatory changes already introduced by both the FCA and the LSE that have helped levelled the playing field with other global listing venues.
“Fostering a stronger investment culture in Britain and boosting retail investor participation in the stock market will strengthen London’s competitiveness by increasing liquidity, improving access to capital for companies and bringing the UK more in line with other jurisdictions such as the US and Nordics, which benefit greatly from strong cultures of retail investing.”
