Britain's financial regulator unveiled a package of reforms today aimed at encouraging retail investors to buy more shares and bonds, setting out one of its clearest statements yet on the direction of post-Brexit investment regulation in the UK.
The Financial Conduct Authority (FCA) published three papers, confirming plans to scrap unpopular EU-inherited investment disclosure requirements, updating the categorisation of professional investors and outlining a broader rethink of risk in the investment landscape.
The measures, part of a series of reforms aimed at improving consumer investment protection, are designed to make investing in stocks and shares more attractive and accessible to individuals, while reinforcing protections where needed, the regulator said.
"This is one of the biggest weeks for UK retail investment in recent history," Jonathan Lipkin, Director of Policy, Strategy and Innovation at the Investment Association, told Reuters.
"It is also, relative to the EU, a moment in time where we more clearly define how we're going to go forward in a post-Brexit environment," he added.
In a move that will be welcomed by investment managers, the FCA confirmed plans to scrap unpopular, prescriptive disclosure rules inherited from the EU's Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation, introduced in 2018.
In their place, the FCA confirmed it will introduce a new regime for Consumer Composite Investments (CCI), covering products such as investment funds, investment trusts and unit- linked life insurance policies. Around 12.5 million UK adults hold a CCI, according to the FCA.
The FCA has been consulting on the new regime since last year, though the final rules go further than initial proposals, simplifying cost disclosures and making explicit the link between risk and reward. The new framework will take effect on June 8, 2027.
Guy Wilkes, a partner at law firm Mishcon de Reya, said consumers are unlikely to notice much change, but firms will welcome the more "grown-up" approach.
The outcomes-based rules put greater onus on the FCA to supervise, meaning firms may see more regulator interaction. "There is also more scope for bad actors to exploit the lack of stricter rules in this more subjective approach," he said.
The UK regulator also set out changes to how clients are classified, aiming to sharpen the distinction between retail and professional investors. Professional clients do not benefit from the FCA's consumer duty, which imposes a higher standard of care.
The FCA said the threshold for a professional investor will stay high, though under the reforms, individuals with at least £10m in cash can opt out of consumer duty protections.
The regulator is also scrapping the "quantitative" test, which uses criteria such as requiring clients to have traded 10 times per quarter, which it said was open to abuse.
A discussion paper published alongside the proposals explores wider reforms to reflect shifts in the past decade.
The FCA will look again at the warnings consumers see before they invest in certain products, with a view to encouraging better informed risk-taking, adding that it wants consumers to understand the "opportunity cost" of holding assets in cash.
The watchdog has also asked whether additional measures are needed to curb "gamification" in trading apps and address risks from the rise in popularity of crypto hoarding companies, or listed companies that stockpile cryptoassets, that expose investors to the risks of crypto without the benefit of regulatory protections.
Jonathan Parry, partner at law firm White & Case, said the FCA's reforms would boost retail investor participation in the stock market, "improving access to capital for companies and bringing the UK more in line with other jurisdictions such as the US and Nordics, which benefit greatly from strong cultures of retail investing."
Later this week, the regulator will issue final rules clarifying the boundary between regulated financial advice and cheaper forms of guidance.
A new category, "targeted support", will allow firms to suggest actions to groups such as those holding excess cash or failing to save enough for retirement.
