UK investment group calls for reform of retail risk warning rules
Britain’s financial regulator must amend rules governing how investment-risk warnings are presented or retail investors will continue to shun stocks and shares, the country’s investment industry said in a report published this week.
A review, commissioned by the government and led by the Investment Association, found that investment firms were reluctant to heed growing evidence that existing “capital at risk” warnings are widely misunderstood and deter people from investing for the long term.
The report recommends that the regulator make it clearer that firms can present a balance of the risks and rewards of an investment, paving the way for them to scale back repetitive warnings where they are not deemed necessary.
Britain has the lowest rate of consumer stock market investment among the G7 group of developed nations, the report found, adding “well-intentioned” policy had led to widespread risk aversion.
“This is a concrete example of where a culture of too much risk aversion is harming household finances, and it must change,” Britain’s financial services minister Lucy Rigby said in a foreword to the report.
The ruling Labour Party wants savers to put more of their cash into equity markets as part of its core promise to boost the UK’s lacklustre economic growth rate, with a reduction in regulation seen as one way to encourage them.
The Financial Conduct Authority, which oversees financial promotions, is already overhauling the framework for retail investments as part of efforts to boost economic growth.
In December, it clarified that it does not prescribe “capital at risk” wording. The watchdog has also previously said it would review its rules for investment promotions, to give firms more confidence to discuss the risks of mainstream investments proportionately.
FCA Deputy Chief Executive Sarah Pritchard said the regulator welcomed the review’s push for clearer communication about risk and reward.
A stronger UK investment culture relied on consumer confidence built on clear and balanced information about rewards and risks, she added.