Retail Access to High Risk Investments Working Group

Industry challenge

TISA encourages the ability to save and invest for lifetime events, particularly for younger generations, but it is imperative that consumers do so with savings and investment products that have a suitable level of risk for their needs. Investors need to be mindful of their overall risk appetite, diversifying their investments and only investing money they can afford to lose in high-risk products.

We are concerned that some investors are being tempted – often through misleading promotion, into buying complex, higher-risk products that are very unlikely to be suitable for them, do not reflect their risk tolerance or, in some cases, are fraudulent.

Conversely, there is a wide range of products that are categorised by the FCA as ‘high-risk’. Some of these are innovative products, designed to produce a good return over a long period, such as LTAFS, albeit with a higher risk and can have a place in a well-balanced portfolio. Some such as structured products are designed to provide a capital guarantee for risk averse consumers but carry liquidity risk.

TISA believes that the current exemptions for high net worth and sophisticated investors is not fit for purpose and should be replaced by an alternative. Furthermore, work needs to be done on categorisation of products and consumer education. In addition, TISA would like to examine whether the gamification of investment has positive or negative effects.

In pursuing these policy positions, TISA does not wish to stifle innovation or damage retail client access to higher risk long term investments. Furthermore, TISA does not seek to ban speculative trading by retail investors, but consumers should be given the understanding that these products are not a long-term investment strategy, and the unpredictable nature of the markets mean that they have more in common with gambling than with investment activity.

Group purpose

The Retail Access to High Risk Investments Working Group discusses the issues described above in order to inform TISA’s discussions with the FCA and HMT, with a view to giving input to any future regulatory changes. The group also receives regular updates on other relevant TISA initiatives.

Areas of focus

• Making recommendations to the FCA and HMT on a suitable regulatory regime that give retail clients safe access to the right type of investments whilst limiting access to some high-risk investments and speculative transactions
• Building on the FCA’s final Policy Statement on Strengthening the Financial Promotions investments Regime, TISA continues to be in dialogue with FCA, who are keen to see our policy develop and for TISA to engage with HMT on our remaining policy asks. Work has focussed on a number of areas to further refine: HNW/Sophisticated Investor exemption regime to “one-size-fits-all”; poor understanding of FCA authorisations by households; and categorisation of Long Term Asset Funds (“LTAFs”) still unnecessarily excluding certain retail investors.
• There remains, in TISA’s opinion, a number of areas to further refine – HNW/Sophisticated Investor exemption regime too “one-size-fits-all”; poor understanding of FCA authorisations by households; and categorisation of LTAFs still unnecessarily excluding certain retail investors. Further FCA meetings have taken place to discuss TISA current concerns with current regime, and the FCA remain keen for further TISA input.
• TISA responded to the consultation on expanding retail access to LTAFs, with input from the group.
• TISA currently preparing response to FCA consultation on Financial Promotions on Social Media.
• Following a HMT consultation to which TISA contributed, the threshold for the High Net Worth and Sophisticated Investors have been revised by HMT as well as the responsibility on firms to ensure they have conducted adequate due diligence on prospective investors.
• In response to the consultation on the expansion of LTAFs to retail customers, the FCA have issued a policy statement that these products will be eligible for inclusion in Innovative Finance ISAs, as well as SIPPs. This is welcomed by TISA following our campaign to widen retail access to LTAFs. Discussions to take place with members on the impact of the latest changes and whether further expansion of retail investor eligibility (to invest in LTAFs) should be pursued.
• TISA are shaping a proposal with members on an alternative to the current exemptions regime – whereby households would need to obtain an ‘investing licence’ to evidence their understanding and capability to assess risk and ability to bear loss, enabling retail investors to invest into Non-Mass Market and Restricted Mass Market Investment products. TISA are currently investigating how this would work in practice, before presenting to HMT and FCA. TISA have had initial discussions with members on an alternative regime being a licence to invest (in RMMI and NMMI). TISA have had initial discussions with the Chartered Institute of Securities and Investment to gain a view on if and how, such a proposal might work. CISI have taken away to form further thoughts.

Ashurst Risk Advisory LLP
Baringa Partners LLP
Broadridge Financial Solutions, Inc
Digital Moneybox Ltd
Euroclear SA/NV
Fidelity International
Hargreaves Lansdown

James Sharp & Co
Northern Trust
RBC Brewin Dolphin
River & Mercantile Asset Management LLP
Simplify Consulting
SIX Financial Information

Lisa Laybourn, Head of Technical Policy and Risk
leads on this work at TISA

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