FCA Implements "Polluter Pays" Rule to Safeguard Personal Investments

<p>The
Financial Conduct Authority (FCA) has unveiled new proposals requiring personal
investment firms to maintain adequate capital reserves to cover compensation
costs in cases where consumers suffer due to poor financial advisory. This
initiative aims to ensure that firms responsible for harmful advice bear the
financial consequences, adopting a "polluter pays" principle.</p><p>FCA Proposes Mandatory
Capital Reserves for Investment Firms</p><p>Under <a href="https://www.fca.org.uk/news/press-releases/personal-investment-firms-bad-advice-hold-capital-redress" target="_blank" rel="nofollow">these
proposals</a>, investment advisors must proactively assess potential redress
liabilities, ensuring sufficient capital is set aside for compensation. Firms
falling short of the required capital will face automatic asset retention
rules, preventing asset disposal. </p><p>This
measure follows the revelation that the Financial Services Compensation Scheme disbursed nearly £760 million from 2016 to 2022 for substandard advice
from failed investment firms, with 95% of this amount originating from just 75
firms.</p><p>“We want to
see a thriving financial advice market to make sure consumers can access the
support they need from financially resilient advice firms,” said Sarah
Pritchard, the Executive Director of Markets and International at the <a href="https://www.financemagnates.com/tag/fca/" target="_blank" rel="follow">FCA</a>. She
further emphasized the importance of a resilient financial advice market,
noting the unfair burden diligent advisors currently bear due to their failed
competitors. </p><p>The FCA actively
seeks feedback from industry and consumer groups on these proposals, extending
the consultation period to 16 weeks and planning extensive industry outreach. The
FCA's approach is designed to be proportionate, building on existing capital
requirements. About 500 sole traders and unlimited partnerships will be exempt
from automatic asset retention rules. Also, firms under prudentially supervised
groups with group-wide risk assessments will be excluded.</p><p>The FCA
plans robust engagement with industry and consumer groups as part of the
consultation process, which runs until March 2023. Accompanying the
consultation paper, the FCA has issued an infographic summarizing the proposals
and communicated expectations to firms regarding existing liabilities.</p><p>Aligning with Broader
Strategies</p><p>These
proposals align with the FCA's consumer investments strategy, aiming to bolster
consumer confidence in investment firms. They also resonate with the FCA's
three-year strategy focused on reducing harm, setting higher standards, and
fostering positive change. </p><p>In other
regulatory updates, the FCA intensified actions against firms with dormant
licenses, a measure to mitigate risks associated with <a href="https://www.financemagnates.com/forex/fca-targets-over-700-unused-financial-licenses-in-consumer-safety-drive/" target="_blank" rel="follow">inactive firms misleading
consumers</a>. Over 1,100 business lines have been influenced, either through
license cancellations or its voluntary surrender by firms.</p><p>The FCA's
report <a href="https://www.financemagnates.com/cryptocurrency/fcas-q3-report-reveals-5310-financial-promotions-amended-amid-regulatory-scrutiny/" target="_blank" rel="follow">for the third quarter revealed</a> the review and amendment of over 5,300
financial promotions, predominantly in the retail investments and lending
sectors. This action followed the introduction of stricter financial promotion
rules for crypto assets.</p><p>Responding
to the challenges posed by the evolving crypto market, <a href="https://www.financemagnates.com/cryptocurrency/fca-unveils-fresh-guidance-amidst-crypto-marketing-turmoil-in-the-uk/" target="_blank" rel="follow">the FCA updated its
guidance for cryptoasset firms</a> to ensure <a href="https://www.financemagnates.com/terms/c/compliance/">compliance</a> with <a href="https://www.financemagnates.com/terms/m/marketing/">marketing</a> regulations.
This includes a transition period for firms to adapt to new rules, which align
with those for other high-risk investments</p>

This article was written by Damian Chmiel at www.financemagnates.com.