While the FCA already has consumer protection rules for these firms and notes that many of them are “delivering the right outcomes for consumers,” the watchdog group said Friday it has seen evidence of harmful practices.
This includes firms providing misleading or difficult-to-grasp information, making it harder for consumers to properly assess the product or service.
“This may provide some insight into why one in four respondents to the FCA’s 2020 Financial Lives Survey said they lack confidence in the financial services industry, and only 35% of respondents agreed that firms are honest and transparent in their dealings with them,” the authority said in a news release.
The FCA says it is proposing an expansion of its rules to ensure a greater and more consistent level of consumer protection.
The new consumer duty, which firms will follow or risk regulatory action, or even enforcement investigations, requires firms to take “all reasonable steps to avoid foreseeable harm to customers” and to “enable customers to pursue their financial objectives and to act in good faith.”
The FCA released a study earlier this year that found that younger traders are increasingly engaging in risky investments without grasping the consequences.
The group’s research examined how and why people are investing in cryptocurrency and foreign exchanges and found that many of these investors are younger, more diverse and comfortable with riskier offerings. They were also prompted to invest in part because of accessible investment apps.
But there is significant evidence that these investments aren’t the best move for less experienced investors, with more than half of those surveyed saying a loss would negatively affect their lifestyle.
The FCA last year tightened its rules governing payment companies following the collapse of Wirecard AG, which locked millions of customers out of their accounts.