The move will protect consumers who are duped into investing in higher risk products that can lead to financial losses. The regulation will demand firms use clear language on the risk warnings of investments and ban incentives such as ‘refer a friend bonuses’ that encourage unwise financial decisions.

The regulation marks the next step of the FCA’s assertive Consumer Investments Strategy, the first of which was implementing a Consumer Duty last week to protect customers in the UK.

Sarah Pritchard, executive director of markets at FCA, commented: “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk. Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act. This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky.”

Over the past 12 months, the FCA intervened and amended 4226 adverts promoting high-risk products to investors.

Cryptoasset promotions will not included in the regulation. Legislation around the crypto market is still being discussed in Parliament, and the questions of the FCA’s jurisdiction over crypto will is expected to be confirmed imminently. The regulation is anticipated to mirror rules on high-risk investments.

Retail banking expert at Pegasystems and former COO of retail and commercial lending at ANZ Bank, Steve Morgan, stated that technology will be playing a big role in helping banks meet the FCA standards.

Morgan commented: “Low code software means providers can easily prototype and quickly get to a working solution for Consumer Duty compliance. To effectively react to the tougher regulatory and customer driven expectations, how low code lowers the barrier for non-tech participation means getting both customer service operations and technology staff together to redesign a process more effectively has never been easier. This could help providers meet both deadlines and even bring more complex products into line with the Consumer Duty requirements sooner than July 2024.

“In pressing ahead with Consumer Duty the FCA does need to recognise how financial services businesses have been remodelled in the last two years. There is going to be an element of needing to cope with dispersed hybrid working teams. Technology can support here with tools to monitor productivity and process efficiency. This can spot where systems latency may be holding teams back, or over / under use of different systems to get to the right customer outcome. However, to truly get the most out of this, teams should be brought together to understand performance, ideate and collaborate on improvements.”

Additionally, the FCA is considering marketing Long Term Asset Funds (LTAFs) to a wider group of retailers and have announced a consultation. The move would allow consumers to diversify their portfolios whilst retaining consumer protection.