PIMFA has called on the government to tighten the rules around the promotion of unregulated financial products.

Responding to the Treasury’s consultation on the approval of financial promotions, the trade association for the wealth management and financial advice industry has called for the approval of unauthorised financial promotions to become a regulated activity.

The trade association described the issue as “particularly salient” in the era of ultra-low interest rates, amid the financial anxiety that many are suffering due to the coronavirus pandemic.

PIMFA suggested that a proportion of consumers will be attracted by investments that purport to offer returns far in excess of the rest of the market, and added that such products are not always marketed to sophisticated or high-net-worth investors but to those on lower incomes or inexperienced savers.

“Given the potential for harm for consumers, and the cost that then falls onto firms in funding the FSCS, we believe that it is right that a gateway is introduced for the approval of financial promotions,” commented PIMFA senior policy adviser, Simon Harrington.

“However, as a result of the experience of many of PIMFA’s member firms of being regulated, we retain very little confidence that the level of regulatory oversight required in supervising the authorisation of financial promotions will be sufficient to prevent a reproduction of the current regime which, as the Treasury quite rightly notes is not sufficient and conducive to consumer harm.”

The association suggested that in making the approval of financial promotions a regulated activity, the government would be empowering the regulator, as well as enabling it to take enforcement action on firms that approved unsuitable investments without the necessary expertise or due diligence.

“Making the approval of financial promotions a regulated activity would mean the FCA could take enforcement action against those firms that approve unsuitable investments without having the necessary expertise to do so,” Harrington continued.

“This will improve the market; reduce consumer harm and ultimately reduce calls on the Compensation Scheme where rising levies over the last five years have become unsustainable for PIMFA members. This is an easy win for all parties involved and we are urging them to grasp this opportunity.”

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