PIMFA, the trade association for the wealth management and financial advice industry of Great Britain, is calling on HM Government to tighten the rules that govern the promotion of unregulated financial products.
Responding to HM Treasury’s consultative paper on the approval of financial promotions, PIMFA has called for the approval of unauthorised financial promotions to become a regulated activity, having previously raised concerns about the issue and its effect on the industry and consumers alike.
The trade body thinks that this issue is particularly salient in the current era of ultra-low interest rates and financial anxiety that many are suffering due to the pandemic, as a proportion of consumers will be attracted by investments that purport to offer returns far in excess of the rest of the market. All too often, it says, consumers are told that such investments pose a low risk, while offering high returns. PIMFA wants to see the regulator punish firms that approve unsuitable investments without the necessary expertise or background checking.
The trade body has also taken the opportunity to criticise the regulator once again: "Additionally this would encourage firms to consider their own practices given the added weight that the undertaking of a regulated activity brings – in light of our concerns about the standard of regulatory supervision as well as the capacity of the regulator at present, this should be welcome."
Simon Harrington of PIMFA commented: “Given the potential for harm for consumers, and the cost that then falls onto firms in funding the FSCS, we believe that it is right that a gateway is introduced for the approval of financial promotions.
“However, as a result of the experience of many of PIMFA’s member firms of being regulated, we retain very little confidence that the level of regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes, is not sufficient and conducive to consumer harm.’
“Making the approval of financial promotions a regulated activity would mean the FCA could take enforcement action against those firms that approve unsuitable investments without having the necessary expertise to do so.
"This will improve the market; reduce consumer harm and ultimately reduce calls on the Compensation Scheme where rising levies over the last five years have become unsustainable for PIMFA members. This is an easy win for all parties involved and we are urging them to grasp this opportunity.”