The FCA will set a clearer demarcation between ‘retail’ and ‘professional’ investors in a bid to drive innovation and boost investment across the UK.
This will effectively remove regulations for firms dealing with professional investors — with the view of making wholesale market more agile and innovative, and able to offer a more diverse range of products. This will include removing firms from initiatives like the Consumer Duty obligations.
However, the FCA said it was looking to enhance how firms classify their clients, to give confidence that retail consumers will be properly protected while giving more freedom to firms who sit outside this boundary.
This is part of a suite of measures being introduced by the FCA to boost investment into the domestic economy and help maintain the UK’s position as a major financial centre.
The regulator said these new rules follow close consultation with both the financial services industry and consumer groups to deliver “practical policy that moves the dial on risk”.
The FCA said the threshold to qualify as a professional investor will remain high, so only those with experience, advice, or the ability to bear risk are taken out of retail protections, such as the Consumer Duty, that they don’t need.
Proposals remove some arbitrary tests and give firms more responsibility to get it right. This includes a new way for wealthy and experienced individuals to opt out of retail protections and streamline how firms assess professional investors.
This announcement comes after the Chancellor announced restrictions to Isas in the Budget, effectively reducing the amount that under 65s can save into cash to boost investments.
In order to protect retail consumers, these new rules will also see the FCA make a decisive shift away from prescriptive and complex templates, which is says consumers don’t find useful. These proposals will give firms more freedom to innovate when it comes to communications and product design, in order to help customers understand potential returns as well as costs and risks.
These regulatory changes have been welcomed by many in the wider pensions industry. Broadstone senior consultant in the financial planing team Winston Ruddick says: “The FCA is right to draw a clearer boundary between retail and professional investors. Ensuring that experienced or well-advised clients can access a broader range of products without unnecessary restrictions helps maintain the UK’s competitiveness, while preserving vital protections for those who need them most.”
Ruddick adds: “Moving towards clearer, more flexible product information should make investing feel more accessible, particularly for first-time or cautious investors who may have been deterred by jargon-heavy documentation.
“Improving consumer understanding is fundamental if we want more people to participate in long-term investing and build resilience for their financial futures.”
FCA executive director of markets Simon Walls says: “Today’s measures support investment risk culture right along the spectrum.They draw a brighter line for professional markets, defined by contracting parties, informed consent, and regulation that is proportionate to that.”
