Consumer Investments Strategy - 2 Year Update

Corporate documents Published: 08/12/2023 Last updated: 13/05/2024

We are providing an update on our progress against the workstreams and outcomes we committed to in our Consumer Investments Strategy in September 2021.

Alongside this, we are also publishing our fifth Consumer Investments data review, showing data from April 2022 – March 2023 on our activities to protect consumers from investment harm.

In this update, we explain that, to avoid double reporting, future reporting will be wrapped into our reporting against the FCA Strategy. The outcomes and workplans under the Consumer Investments Strategy now fit within the wider FCA Strategy and align to our Public Commitments.

While our approach to reporting is changing, our commitment to improving customer outcomes in Consumer Investments remains. Over the last couple of years, we have focused on improving standards across the sector, tackling problem firms and bad actors in the areas we have seen the most consumer harm.

Under HM Treasury’s (HMT’s) Smarter Regulatory Framework (SRF), the FCA will have increased rule-making powers over areas that currently sit within retained EU law. This gives us the opportunity to build on the work done to improve standards and develop a more cohesive regulatory framework for the mainstream investment market that delivers good outcomes for consumers. 

Preparing for the future of Consumer Investments sets out our view of the core features of the sector and how they need to work for the sector to collectively function well. Our forthcoming reforms to the regulatory framework will work towards improving these core features. 

Alongside this update we are also publishing our joint review of the Advice Guidance Boundary Review - proposals for closing the advice gap with HM Treasury, which sets out potential options for reform to create an environment where consumers can get the help and support they need. We invite feedback on this paper. 

1. Summary of Year 2 impact of the Strategy

Work delivered over the last 12 months that is already impacting the market

  • Continued progress to improve standards in the market, with 1 in 5 new consumer investment firm applications being withdrawn or rejected compared to 1 in 7 in the previous 12 months.
  • Continued work to tackle problem firms, with just under £5m in consumer redress for unauthorised investment business and 1,716 consumer alerts published about unauthorised firms and individuals.
  • Implemented the Consumer Duty for new and existing financial products and services in July 2023. The Duty sets higher and clearer standards of consumer protection, and progresses our strategy of putting customers' needs first.  
  • Published new rules (PS22/15) to improve pension outcomes for consumers saving into non-workplace pensions.  
  • Published our post-implementation review of investment pathways which support non-advised consumers to align their drawdown investment with their objectives.
  • Published new rules to strengthen the financial promotions regime for high-risk investments (PS22/10), which we tested with supervisory work and published our findings in September 2023.
  • Continued work addressing unsuitable financial promotions, with firms required to amend or remove 8,582 promotions during 2022 with a further 9,052 promotions in the first three quarters of 2023, and an infographic produced for influencers.  
  • Continued work on our InvestSmart campaign. Findings from our latest tracking survey indicate that since the launch of the campaign, consumers are 24% more likely to say they would undertake research to reduce the chances of them losing money in high-risk investments.
  • Continued to strengthen fraud detection and relationships with external partners, with a focus on trying to take down websites that promote investment fraud and finding new ways to intervene against fraud. We have worked closely with the National Economic Crime Centre (NECC) in developing the multi-agency Fraud Targeting Centre.
  • Published New Asset Retention Rules for British Steel Pension Scheme (BSPS) complaints to help reduce the risk of firms running down their assets while owing redress.
  • Published new rules (PS22/11) on the Appointed Representatives regime, to clarify and strengthen Principals’ responsibilities for ARs.
  • Launched a ScamSmart investment campaign in February 2023 to increase awareness of investment scams among 21-54 year olds.

Work that will impact the market over the next 12 months

  • Implementing the Consumer Duty for closed products and services by July 2024.
  • Implementing the Financial Promotion Rules categorising cryptoassets as ‘Restricted Mass Market Investments’ and applying restrictions on how they can be marketed to UK consumers (PS23/6).
  • Further work on our updated guidance for financial promotions on social media.
  • Implementing the new authorisations gateway for firms that approve financial promotions for unauthorised persons (PS23/13). The window for firms to apply for permission opened on 6 November 2023.
  • Continued work to disrupt and act against financial crime, led by our specialist Financial Crime function, established as part of the FCA’s wider Financial Crime Public Commitment.
  • We have published a Consultation Paper on our proposals for a new capital deduction for redress for personal investment firms (PIFs).

Progress on longer term changes to the market:

  • Our joint work with HM Treasury on the Advice Guidance Boundary Review. The review aims to ensure that consumers get the help they want, at the time they need it, and at a cost that is affordable to them, to help make informed financial decisions.
  • We will progress the key actions set out in the Compensation Framework Review Feedback statement over the next year.

2. The consumer investment market today

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Data table

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Data table

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*Accounts opened by all firms offering retail investment services (on an execution only, advised or discretionary basis) which then go on to trade a MiFID instrument excluding European submissions.

The market saw a slight contraction in the last 12 months, evidenced by the proportion of UK adults holding an investment declining. There has also been a slowdown in the number of new consumer investment accounts opening.

Table 1: Economic indicators since the Consumer Investment Strategy was published

  

14 September 2021  

14 September 2022  

14 September 2023

CPI Inflation

3.1%  

9.9% (August 2022)  

6.7% (August 2023)

Quarterly GDP growth  

1.3% (Q4 2021)  

0.2% (Q2 2022)  

0.2% (Q2 2023)

Bank of England Base rate   (BofE)

0.1%  

2.25% (current) 

5.25% (current)

Consumer Confidence Index (Growth from Knowledge (GfK )  

-13% 

-49% (September 2022)  

-21% (September 2023)

MSCI World Index of developed markets 

3,126 (13 September 2021) 

2,260 (13 September 2022)  

2,983 (September 2023)

Households’ saving ratio (ONS (Office of National Statistics) (Office of National Statistics)) 

11.7% (Q2 2021) 

7.6% (Q2 2022) 

8.7% (Q1 2023)

Net Retail Fund Sales (IA) 

 £19.3 bn (H2 2021) 

 - £11.9bn (H1 2022) 

£6.1b (H1 – 2023)

Consumers face a very different environment now compared to when the Strategy was published in 2021, with the Bank of England base rate at its highest point since 2008. Although there have been some indicators of improvements across the metrics above, the rising cost-of-living continues to affect consumers and relatively unstable economic conditions continue to affect global financial markets which remain quite volatile.

3. Overall progress towards the outcomes

We set ourselves four outcomes in our Consumer Investments Strategy published in September 2021. Three of the outcomes targeted improvements by the end of September 2025, with the fourth by 2030.

We also set out clear aims for the future of the market. We wanted to see a market where consumers can:

  • Invest with confidence, understanding the risks they are taking, and the regulatory protections provided.
  • Identify and access investments that suit their circumstances and attitude to risk, only access higher risk investments knowingly and are protected from scams.
  • Access advice or support to invest.
  • Get clarity about what happens if things go wrong, and the cost of redress is met in a fair and sustainable way.

We committed to a significant work programme to deliver on these outcomes and progress our aims, and in this section, we summarise our ongoing work in each area.

It will take time to see the full impact of our interventions. Additionally external factors, such as the change of economic environment since the Consumer Investments Strategy was published, have had an impact on our ability to influence the outcomes we set in the strategy in 2021. Since the 1-year update publication, we have seen progress in 2 of the outcome metrics:

  • Scams and Fraud - we have seen a decrease in the amount lost to investment fraud compared to 2022.
  • Consumer Redress - we saw the FSCS pay out less compensation under investment provisions than they did the previous year.
  • High Risk Investments – we have not seen a significant change in the number of consumers investing in high-risk investments who indicate a low risk tolerance or demonstrate one or more characteristics of vulnerability.

Mainstream Investments – the proportion of UK adults with £10,000 or more of investible assets (with the majority or all of this in cash) has increased in the last year. The proportion of this group who have some appetite to take investment risk has remained the same.

We provide commentary on these trends throughout this update.

Table 2: 2-year update on the 4 target outcomes

 

Baseline

2022 update

2023 update

Trend

Mainstream Investments - 20% reduction in number of consumers with higher risk tolerance holding over £10k entirely or over 75% in cash by 2025.

55% (8.4m) of UK adults who have £10k or more investible assets hold the majority (75%+) or all in cash (Financial Lives 2020 Survey*)

58% (9.7m) of UK adults who have £10k or more investible assets hold the majority (75%+) or all in cash. Of these, 44% (4.2m) have some appetite to take investment risk (Financial Lives 2022 Survey*)

61% (11.8m) of UK adults who have £10k or more investible assets hold the majority (75%+) or all in cash. Of these, 44% (5.2m) have some appetite to take investment risk (Financial Lives 2023 Survey*)

4 percentage points increase in the proportion of UK adults who have £10k or more in investible assets who hold these mostly or all in cash in 2023, relative to 2022. The proportion of those who have some appetite to take risk still represented at 44% 

High Risk Investments - Reduce the number of consumers investing in high-risk investments who indicate a low risk tolerance or demonstrate one or more characteristics of vulnerability by 50% by 2025

4% (2.3m) of UK adults held high risk investments (cryptoassets, innovative finance ISAs, peer to peer lending or investment based crowdfunding products) in 2020

Of these, 42% (1m) have one or more characteristics of vulnerability or have very low general risk tolerance. (Financial Lives 2020 Survey)

8% (4.1m) of UK adults held high-risk investments (cryptoassets, innovative finance ISAs, peer to peer lending or investment based crowdfunding products) in 2022

Of these, 41% (1.6m) have one or more characteristics of vulnerability or have very low general risk tolerance. (Financial Lives 2022 Survey)

When we include mini-bonds, contracts for difference and shares in unlisted companies in UK adults holding high-risk investments, this figure is 11% (5.7m)

Of these, 52% (3.0m) have one or more characteristics of vulnerability or their appetite for investment risk is very low (Financial Lives 2022 Survey**)

7% (3.6m) of UK adults held high-risk investments (cryptoassets, innovative finance ISAs, peer to peer lending or investment based crowdfunding products) in 2023

Of these, 49% (1.8m) have one or more characteristics of vulnerability or have very low general risk tolerance. (Financial Lives 2023 Survey***)

When we include mini-bonds, contracts for difference and shares in unlisted companies in UK adults holding high-risk investments this figure is 9% (4.8m).

Of these, 55% (2.7m) have one or more characteristics of vulnerability or their appetite for investment risk is very low (Financial Lives Survey 2023**)

1 percentage point change – not statistically significant*** of UK adults holding high risk investments (cryptoassets innovative finance ISAs, peer to peer lending or investment based crowdfunding products)

9 percentage point increase on the proportion of adults who hold these high-risk investments who have one characteristics of vulnerability or have very low general risk tolerance

1 percentage point decrease in UK adults holding high-risk investments when we include mini-bonds, contracts for difference and shares in unlisted companies

The proportion of adults who hold these high-risk investments who have one or more characteristics of vulnerability or their appetite for investment risk is very low has a 3-percentage point change – which we consider to be not statistically significant ****

Scams and Fraud – Slow the growth in investment fraud victims and losses.

£622m lost to investment fraud in 2020/21 (Action Fraud*****)

£914m lost to investment fraud in 2021/22 (Action Fraud)

£748m lost to investment fraud in 2022/23 (Action Fraud)

18% decrease from last year

Consumer Redress – Act to stabilise the FSCS Life Distribution & Investment Intermediation (LDII) and Investment Provision (IP) funding classes by 2025 and target a year-on-year reduction in these classes from 2025 to 2030

£454m compensation paid in 2020/21 (£131m for Investment Provision and £323m for Life Distribution & Investment Intermediation)

£385m compensation paid in 2021/22 (£122m for IP and £263m for LDII)

£234m compensation paid in 2022/23 (£31m for IP and £203m for LDII)

39% decrease from last year

* Financial Lives data on the proportion of investible assets held in cash is calculated by comparing the amount of money each adult holds in cash savings products to the amount they hold in investment products (based on the current market value). Some adults did not tell us their cash and/or investment values, but rather their overall level of investible assets. These adults have been excluded from this analysis. As a result, population estimates (the number of adults in millions) are likely to be an under-estimate of the actual population.

** We ask survey respondents how willing they are to take risk when investing, on a scale of 0-10. We say people who scored themselves 4 or more have some appetite to take investment risk; people who scored themselves 0-3 have ‘very low’ appetite. The investment risk question was not available in 2020 when the Consumer Investment Strategy was developed, and a question on general risk tolerance (not restricted to risk) was used instead. We have included an update on both measures for transparency.

*** The 2023 results are from an FLS recontact survey. In May 2023, we recontacted all FLS May 2022 respondents who had agreed to be invited to take part in a follow-up survey.  Just over 6,000 took part, a good response rate of around a third of those invited.  We can compare results between the two surveys – importantly, the data from both surveys were weighted in the same way, to be representative of UK adults. There are some methodological differences between the two surveys, however, and it is possible that these may contribute to changes in some results.  The recontact survey checked for changes in people’s ownership of financial products, rather than re-asking all product ownership questions. The recontact survey results are representative of 19+ year olds, because we re-contacted respondents 12 months after the main FLS 2022 survey of adults aged 18+.

****While the % figures have changed over time, the change is not statistically significant. Where we pick out results in the report text, they are always statistically significant to a confidence level of 95%, unless we explicitly say they are not. This means that there is less than 5% chance that this difference would have been observed in the survey, if there was no significant difference in the actual population. By ‘chance’ we mean the probability of errors associated with sampling.

*****Action Fraud figures were obtained from the City of London Police, and are based on the data reported in the National Fraud Intelligence Bureau (NFIB) Fraud and Cyber Crime Dashboard for the following fraud codes: Pension Liberation Fraud, Fraud Recovery, Share Sales & Boiler Room Fraud, Pyramid or Ponzi Schemes and Other Financial Investment. These figures are based on reports by victims and the losses have not been verified.

3.1. Outcome 1. Mainstream Investments

Outcome

20% reduction in number of consumers with higher risk tolerance holding over £10k entirely, or over 75%, in cash by 2025.

Update on the strategy workstreams

In our Consumer Investments Strategy, we committed to make it easier for firms to support consumers to invest in straightforward products, deliver the Consumer Duty, and to improve consumer pension outcomes.

Giving consumers the confidence to invest: In November 2022, we published CP22/24 which set out initial proposals for a ‘core investment advice’ regime.  The aim of this work was to allow firms to provide mass-market consumers with straightforward financial needs greater access to simplified advice on investing into mainstream products, specifically within stocks and shares ISAs (S&S ISAs). This was intended to address the Mainstream Investments Outcome by creating a means to support consumers who may benefit from investing in line with their risk appetite, but who currently hold excess cash savings. 

The potential for more significant change is now possible through the Advice Guidance Boundary review, and in August 2023 we announced we would roll the development of the regime into the broader review. This will allow us to support the more substantial changes being sought and considered through the review. 

Alongside our announcement, we also published information to help firms provide more support to customers making investment decisions

Through our Innovation Pathways and Regulatory Sandbox, we have continued to provide tailored regulatory guidance to new firms, giving them access to vital regulatory expertise and a set of tools to enable them to test products and services. Firms we supported in 2022/23 were primarily those trying to address the advice gap by providing digital advice and guidance journeys.

Improving consumer investment outcomes: The Consumer Duty came into force for new and existing financial products and services on 31 July 2023. The Consumer Duty will help enable good consumer investment outcomes in several ways. This includes improving firms’ focus on appropriate target markets and providing support that meets their customers’ needs. In the run-up to implementation, we wrote to all consumer investment firms, and provided a range of support materials and events to help firms understand our expectations and what the Duty means for them.

We have seen firms carry out significant work to make sure their products and services are in line with the higher standards that the Duty expects, for example making changes to product charges, how they support vulnerable customers and improvements to management information to make customer outcomes more visible. We have been clear that compliance with the Duty is not a one and done exercise, and firms need to consistently and regularly challenge themselves to ensure their actions are compatible with delivering good outcomes for customers.

Improving consumer pension outcomes: As one of the main ways that consumers invest for their future, pensions are a core element of the mainstream market. We have progressed a range of initiatives to improve consumer pension outcomes.

We want pension schemes to deliver the best possible value and drive better long-term outcomes for pension savers. To deliver this, we jointly consulted on a new Value for Money framework for Defined Contribution pensions. This aims to shift scheme and employer focus from predominantly costs to a longer-term and holistic view of value, including investment returns. We published our joint response to feedback received in July 2023.

We identified that non-advised consumers buying a non-workplace pension (NWP) can find it difficult to engage, resulting in them choosing products unlikely to meet their objectives or consumers putting off buying an NWP at all. We therefore set out final rules to improve outcomes for consumers saving into NWPs. These rules require pension providers to offer a ‘default’ option to non-advised consumers buying an NWP and issue a ‘cash warning’ to consumers with significant and sustained levels of cash in their NWP. These rules come into force in December this year.

In July 2023, we published our post-implementation review of investment pathways, which support non-advised consumers to align their drawdown investment with their objectives.

To ensure consumers achieve the same good outcomes regardless of pension type, and demonstrating our commitment to continue working closely with The Pensions Regulator (TPR), in December 2022 we published our FCA/TPR regulatory strategy update.

We are working with industry on behavioural field trials to test and understand effective touchpoints for engaging customers with their pension. The findings will add to the sum of knowledge in the pensions sector and the findings may also be used by firms in support of their approaches to engaging customers to comply with the Consumer Duty. We have published the results from the first stage of this research alongside this publication.

Update on the outcome

Table 3: Outcome metrics

 

2020

2022

2023

% point change between 2022 and 2023

Proportion of adults who have £10k+ investible assets, with the majority (75%+) or all of this in cash

55% (8.4m)

58% (9.7m)

61% (11.8m)

4 percentage point increase

The proportion of this group who have some appetite to take investment risk

-

44% (4.2m)

44% (5.2m)

No change

The proportion of this group who have some appetite to take risk generally

59% (5.0m)

58% (5.7m)

57% (6.7m)

1 percentage point – change not statistically significant *

*While the % figures have changed over time, the change is not statistically significant. Where we pick out results in the report text, they are always statistically significant to a confidence level of 95%, unless we explicitly say they are not. This means that there is less than 5% chance that this difference would have been observed in the survey, if there was no significant difference in the actual population. By ‘chance’ we mean the probability of errors associated with sampling.

The proportion of UK adults with £10,000 or more of investible assets (with the majority or all of this in cash) has increased in the last year. The proportion of these who have some appetite to take investment risk has remained the same (44%).

Increases in cash savings rates mean consumers currently have more ways in which they can make their money work for them, and some consumers may have made a conscious decision not to invest at this time. Our cash savings work has included taking steps to make sure there is a competitive cash savings market that delivers better deals for savers, ensuring banks and building societies are passing on interest rate rises to savers correctly. 

Whilst consumers now have more options for their cash savings, those with significant excess cash assets, that have some appetite for investment risk and no plan to access their cash in the short to medium term, might benefit from support to do more with their money rather than leave it in cash in the longer-term.

Looking ahead, we will be increasing our focus on improving the mainstream market for firms and consumers. The Advice Guidance Boundary review aims to ensure that consumers get the help they want, at the time they need it, and at a cost that is affordable, to help them make informed financial decisions – this is especially important with the cost-of-living pressures.

In addition to the Advice Guidance Boundary review, we are working on a range of initiatives, including those which will implement HM Treasury’s Smarter Regulatory Framework (SRF). In Preparing for the future of Consumer Investments we set out how our upcoming work will look to deliver a regulatory environment that facilitates good consumer outcomes.  

3.2. Outcome 2. High Risk Investments

Outcome

Reduce the number of consumers investing in high-risk investments who indicate a low risk tolerance or demonstrate one or more characteristics of vulnerability by 50% by 2025.

Update on the strategy workstreams

In our Consumer Investments Strategy, we committed to strengthening the financial promotion regime, launch our InvestSmart communications campaign and continue to use our regulatory toolkit to protect consumers from harm.  

Strengthening the financial promotions regime: One of the main ways consumers build their understanding of the risks and regulatory protection for investments is through the information they get in financial promotions.

High-risk investments have a place in a well-functioning-consumer investment market for those who understand the risks involved and can absorb potential losses. However, our consumer research showed that too many consumers were investing in high-risk products which were not aligned with their risk tolerance and were unlikely to meet their needs. So we introduced new rules to strengthen the financial promotions regime for high-risk investments (PS22/10) phased in from 1 December 2022. The rules are designed to ensure that firms communicating and approving financial promotions for high-risk investments do so to a high standard, ensuring consumers receive high-quality financial promotions that enable them to make effective, well-informed investment decisions. We carried out supervisory work to monitor compliance and published our findings in September 2023.

Financial promotions rules for cryptoassets (PS23/6) came into force on 8 October 2023 (with the option for firms to be given until 8 January 2024 to introduce features that require greater technical development). These rules require cryptoasset firms’ marketing to be ‘clear, fair and not misleading’, labelled with prominent risk warnings and to not inappropriately incentivise people to invest. These rules apply to firms wherever they are based globally and help strengthen how UK consumers are protected from the high risks associated with cryptoassets.

Our financial promotions data showed we required firms to amend or remove 8,582 promotions during 2022 - 14 times more than 2021. So far in the first three quarters of 2023 we have required firms to amend or remove 9,052 promotions, a further increase from last year. In April 2023, we produced an infographic for influencers to help them identify what could be an illegal financial promotion.

We published a consultation paper on updated guidance for financial promotions on social media in July 2023. The new guidance consultation recognises that social media has become an increasingly vital part of firms’ marketing strategies and aims to clarify expectations in this evolving area.

The legislation that underpins the new authorisations gateway (S21 Gateway) for firms that approve financial promotions for unauthorised persons has been finalised. We published our Policy Statement (PS23/13) and near final rules on how we will implement the gateway on 12 September 2023. The rules have now been made final. Firms that apply to approve financial promotions will undergo a robust assessment to ensure they have the competence and expertise to approve financial promotions for the investment types selected in their applications. We began accepting applications on 6 November 2023.

InvestSmart Consumer Campaign: This year we continued our InvestSmart campaign, which aims to help less experienced investors make better-informed investment decisions more suited to their appetite for risk. This includes an innovative targeted cinema advert before the film ‘Dumb Money’, which profiles the GameStop episode.

Findings from our latest tracking survey indicate that since the launch of the campaign, consumers are 24% more likely to say they would be careful by doing research to reduce the chances of them losing money in high-risk investments. They are also 24% more likely to look to learn about investing from reputable information sources. One of these sources is 15% more likely to be the FCA website.

Deploying our regulatory toolkit: We have continued to focus on our regulatory resources on acting against firms and individuals who cause consumer harm:

  • Preventing harm at the gateway: In 2022/23, 1 in 5 new consumer investments firm applications were withdrawn or rejected because they could not demonstrate they could meet minimum standards on an ongoing basis.
  • Acting against firms and individuals who cause consumer harm: Over 2022/23 we obtained just under £5m in consumer redress from unauthorised investment business and published 1,716 consumer alerts about unauthorised firms and individuals. In November 2022 we issued a warning to trading app-operators and published research titled Gaming trading: how trading apps could be engaging consumers for the worse.  

Update on the Outcome

Table 4: Outcome metrics

 

2020

2022

2023

% point change between 2022 and 2023

Proportion of UK adults holding cryptoassets, P2P lending, Innovative Finance ISAs, investment-based crowdfunding (Financial Lives Survey)

4% (2.3m)

8% (4.1m)

7% (3.6m)

1 percentage point change - not statistically significant**

Proportion of UK adults holding these investments who have one or more characteristics of vulnerability or have very low general risk tolerance (Financial Lives Survey

42% (1m)

41% (1.6m)

49% (1.8)

9 percentage point increase

Proportion of UK adults holding cryptoassets, P2P lending, Innovative Finance ISAs, investment-based crowdfunding, CFDs, shares in unlisted companies, mini-bonds (Financial Lives Survey)

n/a

11% (5.7m)

9% (4.8m)

1 percentage point decrease

Proportion of UK adults holding these investments who have one or more characteristics of vulnerability or have low or no appetite for investment risk*(Financial Lives Survey)

n/a

52% (3.0m)

55% (2.7m)

3 percentage point change - not statistically significant**

*We ask survey respondents how willing they are to take risk when investing, on a scale of 0-10. We say people who scored themselves 4 or more have some appetite to take investment risk; people who scored themselves 0-3 have ‘very low’ appetite.

**While the % figures have changed over time, the change is not statistically significant. Where we pick out results in the report text, they are always statistically significant to a confidence level of 95%, unless we explicitly say they are not. This means that there is less than 5% chance that this difference would have been observed in the survey, if there was no significant difference in the actual population. By ‘chance’ we mean the probability of errors associated with sampling.

Table 5: High-risk investments

Percentage of UK adul   ts holding high-risk investments (Financial Lives Survey)

P2P

Crowdfunding

IFISAs

Crypto

2020

1.5%

1.2%

0.4%

2.0%

2022

0.9%

1.4%

1.0%

5.8.%

2023

0.7%

1.6%

0.5%

4.3%

The proportion of UK adults owning high-risk investments increased between 2020 and 2022. This was driven primarily by an increase in ownership of cryptoassets which tripled in this period. 2023 data shows a small decline in cryptoasset ownership, but we have not seen a return to 2020 levels. While ownership of other types of high-risk investments has remained relatively steady, cumulatively, we have seen a reduction in ownership of high-risk investments in 2023.

As set out in Table 4, we have two measures for high-risk investment holdings relating to risk tolerance and vulnerability from the Financial Lives survey:

  • Restricted list of high-risk investments: The proportion of UK adults holding high-risk investments (the list used at time of original Consumer Investment Strategy was restricted to cryptoassets, P2P lending, Innovative Finance ISAs, investment-based crowdfunding) who have one or more characteristics of vulnerability or have very low general risk tolerance
  • Wider list of high-risk investments: The proportion of UK adults holding high-risk investments (a wider list of products introduced in 2022, includes the investments above plus CFDs, shares in unlisted companies and mini-bonds) who have one or more characteristics of vulnerability or have very low appetite for investment risk

We see two different trends when looking at these metrics.

In the ‘wider’ group, we see the numbers have remained relatively steady over 2022 and 2023.

However, when we look at the more ‘restricted’ measure, we see there has been a 9-percentage point increase in the proportion of UK adults holding high-risk investments who have one or more characteristics of vulnerability or have very low general risk tolerance over the same period. From our analysis of the Financial Lives survey data, it appears that the increase is driven by an increase in the proportion of consumers who have very low general risk tolerance (not restricted to investment risk), and not driven by an increase in the number of vulnerable customers generally or vulnerable customers holding high-risk investments. This change in general risk appetite may be driven by consumers being more cautious due to the cost-of-living crisis.

As the work we have outlined above takes effect, we will continue to monitor the level of consumers investing in high-risk investments that have a low appetite for risk or that have characteristics of vulnerability, and take action where we see the situation getting worse.

The Consumer Duty, which became effective for open products and services in July 2023, requires firms to ensure that their products and services are appropriately designed for the needs and objectives of their target market. It also requires firms to ensure these products and services are being promoted and distributed effectively, with due consideration paid to any vulnerable customers. This is particularly important for any manufacturers or distributers of higher-risk or complex products. We will be paying close attention to how these firms define their target market, monitor distribution, support vulnerable customers, and evidence that vulnerable customers are getting good outcomes.

3.3. Outcome 3: Scams and Fraud

Outcome

Slow the growth in investment fraud victims and losses.

Update on the strategy workstreams

In our Consumer Investments Strategy, we committed to continue to tackle scams and fraud through our targeted ScamSmart campaigns, information-sharing and cooperation with external partners and our work to disrupt unauthorised businesses. 

Deploying our regulatory toolkit: We continue to act against firms and individuals who are carrying out regulated activities but not authorised or exempt under FSMA; as these are likely to be scams or involved in some aspect of fraud.

Table 6: action against unauthorised firms and individuals

Action against unauthorised firms and individuals

2020/21

2021/22

2022/23

Reports of potential unauthorised business 

30,493

29,848

25,960

Consumer alerts published

1,317

1,844

1,716

Tackling scams faster: We continue to tackle scams faster as part of our data strategy, scanning approximately 100,000 websites created every day to identify those that appear to be scams. In 2022/23 we added 1,716 possible scams to our consumer Warning List.

  • We have strengthened consumer protection by speeding up removal of firms that do not use their regulatory permissions. In 2022, we cancelled the authorisation of 627 firms that failed to meet our minimum standards or stopped being eligible for authorisation, an increase of 30% compared to 2021. This includes the use of the new powers we introduced to support our ‘use it or lose it’ initiative.
  • We have continued to influence search engines and social media firms to prevent scams and other illegal financial promotions being published. As a result, we have seen a near 100% reduction in illegal paid-for advertisements on Google and Bing.

Providing direct consumer support through our Consumer Helpline: Between April 2022 and March 2023, we received nearly 100,000 enquiries from consumers with around 17% of these about potential investment scams.

ScamSmart Consumer Campaign: ScamSmart ran a pensions scams campaign between October and November 2022. In February 2023, we launched a ScamSmart investment campaign to increase awareness among 21–54-year-olds. Data shows that visitors to the website continue to increase.  Those who go on to check a potential investment have declined over the last year while more have checked our Warning List.

Table 7: ScamSmart data table

  

2020/21

2021/22

2022/23

YoY %  change

Unique visitors to the ScamSmart website

108,897

173,199

194,586

12% increase

Visitors who checked a potential investment 

23,841

26,553

23,518

Decreased 11%

Visitors who searched for a firm on the warning list

23,921

26,322

28,394

8% increase

Making reducing financial crime a business priority: As part of our Financial Crime Commitment, we have established a dedicated, specialist Financial Crime function within our Consumer Investments directorate. The function’s core activity is carrying out pro-active disruptive work and taking assertive action to deal with financial crime. By using stakeholder relationships and making better use of intelligence and data, the team will proactively identify and address fraud and money laundering in consumer investments increasing the number of on-site visits and inspections.

Update on the outcome

Table 8: Outcome Metrics

​  

​2020/21 

​2021/22 

2022/23

​YoY % change 

FCA consumer helpline – Enquiries about possible investment scams 

  

16,406​  

​  

19,370  

 

17,717

​  

Decreased 9%

Action Fraud* – Investment fraud reported volumes​  

24,641 

28,064 

23,858

Decreased 15%

Action Fraud* – Investment fraud losses 

£622m 

£914m 

£771m

Decreased 16%

UK Finance – Investment scam cases ​  

​  

8,181​ (2020)  

  

​  

12,074​ (2021​)  

  

 

10,085 (2022)

​  

Decreased 16%

UK Finance – Investment scams losses​  

​  

£109.4m 2020)​  

​  

£171.7m (2021​)  

 

£114.1m (2022)

​  

Decreased 34%

*Action Fraud figures were obtained from the City of London Police, and are based on the data reported in the National Fraud Intelligence Bureau (NFIB) Fraud and Cyber Crime Dashboard for the following fraud codes: Pension Liberation Fraud, Fraud Recovery, Share Sales & Boiler Room Fraud, Pyramid or Ponzi Schemes and Other Financial Investment. These figures are based on reports by victims and the losses have not been verified.

All scam indicators are subject to uncertainty and reporting errors. However, we can see improvements with reduced investment scam activity indicated by enquiries to our consumer helpline, reported volumes and losses all declining (although not yet to 2020/21 levels).

3.4. Outcome 4: Consumer Redress

Outcome

Act to stabilise the FSCS Life Distribution & Investment Intermediation (LDII) and Investment Provision (IP) funding classes by 2025 and target a year-on-year reduction in these classes from 2025 to 2030.

Update on the strategy workstreams

In our Consumer Investments Strategy, we committed to address the drivers of FSCS costs, investigate changes to capital requirements for adviser firms, review the compensation regime, address misuse of the Appointed Representatives regime and respond to changes in the Professional Indemnity Insurance (PII) market.

Addressing the pension issues driving Financial Services Compensation Scheme (FSCS) costs: Unsuitable Defined Benefit (DB) pension transfer advice and past failings in firms’ due diligence about non-standard assets held in SIPPs continue to drive FSCS costs.

We continue our work ensuring consumers who were given unsuitable advice to transfer out of Defined Benefit (DB) pensions receive timely and fair redress. This includes continuing to support the delivery of the s404 redress scheme for former members of the British Steel Pension Scheme (BSPS).

This year we made Asset Retention Rules for BSPS complaints to help reduce the risk of firms dissipating their assets while owing redress. As at the end of March 2023, of the approximately 352 firms that advised on the BSPS, 151 firms responsible for advising and arranging around 3,000 of the nearly 8,000 BSPS transfers were covered by these rules.

During 2022, we concluded some multi-firm work on SIPP operator due diligence. This work found that, while many SIPP operators no longer willingly accept non-standard investments, many firms still needed to improve their controls over intermediaries, particularly discretionary investment managers.

Investigating changes to prudential requirements for non-MiFID adviser firms: Most advisors are categorised as personal investment firms (PIFs). PIFs are subject to prudential regulation by the FCA. We have published a consultation on our proposals for a new capital deduction for redress for PIFs. This would require these firms to set aside capital for potential redress liabilities, and if they are not able to do this they would be subject to an asset retention requirement. Within the consultation we have included a discussion chapter on the wider prudential framework for PIFs and how this could be improved. The consultation is open until 20 March 2024.

Reviewing the compensation framework: We published our Compensation framework review: response to feedback and next steps FS22/5 in December 2022. We continue to progress the key actions set out in our feedback statement. Our future work will be shaped and informed by consumer research to improve our understanding of the impact of FSCS protection on consumer decision-making, confidence and behaviour. We will consider any further work alongside other work looking at retail investments.

Addressing misuse of the Appointed Representatives (AR) regime: Some of the largest AR networks operate in the Consumer Investments sector. Our new rules and guidance which set higher standards for principal firms took effect on 8 December 2022. As part of the new rules, principals must now give us more information about their ARs. In a recent publication we set out how we are using data to inform our supervisory approach, including examples of how we have used data to intervene to prevent harm.

Update on the outcome

Table 9: Outcome metrics

 

2020/21

2021/22

2022/23

2023/24 (forecast outlook)

YoY% change 2021/22-2022/23

FSCS Total LDII & IP compensation costs paid to consumers

£454m

£385m

£234m

£274m

39% decrease

FSCS Life Distribution & Investment Intermediation (LDII)​ compensation costs paid to consumers

£323m

£263m

£203m

£213m

23% decrease

FSCS Investment Provision (IP) compensation costs paid to consumers ​ 

£131m

£122m

£31m

£61m

75% decrease

The FSCS total LDII and IP forecast for 2022/23 was estimated at £446m, but costs only materialised at a much lower £234m. This created additional surpluses, with the largest surplus found in the LDII. The FSCS noted that lower volumes of pension decisions were made, and some assessments determined no financial loss. Surplus under IP was for claims expected in 2022/23 that are now expected in 2023/24 and later years.  

In the recent May 2023 outlook the FSCS noted that while the level of compensation they expect to pay out this year is lower than recent years, they have no evidence that there is a sustained downward trend as compensation costs for 2023/24 are expected to be higher than the current year.

4. Future reporting

Our plans for future reporting

Two years on from launching our Consumer Investments Strategy we are still rightly accountable for our work to protect consumers. This will be our last update on the outcomes and targets of our Consumer Investments Strategy as a standalone publication.

One year after we first published our Consumer Investments Strategy, in April 2022, we published the FCA Strategy. The outcomes and workplans under the Consumer Investments Strategy now fit within the wider FCA Strategy, and so, future reporting will become part of our reporting against the FCA Strategy. We measure our FCA Strategy against metrics and publish these as part of our annual report and accounts.

Table 10: Our outcomes aligned to the FCA Strategy commitments

Consumer Investments Strategy Outcome

FCA Strategy Commitment

Mainstream Investments

Putting customers needs’ first

Higher Risk Investments

Enabling consumers to help themselves

Scams and Fraud

Reduce and prevent financial crime

Consumer Redress

Improving the redress framework

Our continued focus in the consumer investments market

While our reporting will be part of the FCA Strategy, our focus and commitment to the aims of the Consumer Investments Strategy remains.  

We want to enable a market where consumers of all wealth levels can make effective, timely and properly informed investment decisions. They should be equipped to invest with confidence, understanding the risks they are taking and the regulatory protections provided. 

A well-functioning consumer investments sector will in turn support capital raising, investment, innovation and job growth in the real economy, driving wider economic growth that can benefit everyone.

Following the UK’s departure from the EU, we are approaching a period of change, as we consider the repeal and replacement of provisions in retained EU law.

We want industry and consumers to understand the direction of the policy work we are planning to do. We have set out our view on how some of the core features of the consumer investments sector needs to work for consumers to get good outcomes and for the sector to collectively function well. Our forthcoming initiatives will work cohesively towards delivering on these objectives.