“This could potentially align with the recent changes to our financial promotion rules for high-risk investments,” it said.
“These changes introduced strengthened rules for firms when communicating or approving financial promotions relating to high-risk investments - to be classified as ‘Restricted Mass Market Investments’ and ‘Non-Mass Market Investments’ from February 1, 2023.”
The FCA said without further additional safeguards, there is a real risk that consumers could continue to be negligently advised to invest into non-standard or high-risk investments, without the safety net protection of the FSCS if the firm responsible goes out of business.
“So we will continue to consider the question of the appropriate scope of FSCS protection as part of connected workstreams to reshape the regulatory framework for consumer investments,” it said.
“This includes work underway on the Government’s Future Regulatory Framework Review. We are particularly keen to build on work already undertaken around high-risk investments and explore opportunities to revise regulatory requirements around different investments.”
Caroline Rainbird, chief executive of the FSCS, said she was encouraged to see the level of response that the FCA received to the discussion paper.
"It is clear from the feedback that FSCS continues to be seen as an essential safety net, and that removing protection from consumers is not something there is much appetite for.
“Instead, there is consensus that we must focus on improving conduct in the market and this must be the primary goal.”
The FCA also said in the feedback that it is to consider increasing compensation limits for certain pension claims after several respondents called on the regulator to review current limits for claims about pension products.
Rainbird said: “A review of the compensation limit for pensions claims is something we called for, and I am pleased that this will be looked at next year.
“We also welcome the review in-tandem of the levy limits for each funding class, and the suggestion to introduce periodic reviews for both compensation and class limits."
U-turn on risk-based levy
The FCA was considering whether firms should pay a premium on levies for carrying out higher risk activities or selling risky products as part of its compensation review.
The regulator said this approach would be in line with views often expressed by regulated firms.
It would see firms that choose not to undertake any business involving ‘higher risk’ activities allocated a reduced share of the annual levy for their funding class, compared to firms that do.
But the drawbacks would be that it could disincentivise firms to distribute higher risk investments even if they could be in the consumer’s interests, and that it could stifle innovation and competition.
