Investment firms offering “high-risk” products, including peer-to-peer lending platforms, will need their clients to invest an extra £135 to break even after new rules are introduced.
The Financial Conduct Authority (FCA), which today unveiled its crackdown on the marketing of high-risk products, estimates that 142,000 consumers will buy high-risk investments, excluding cryptoassets, for the first time or increase their holdings in these, every year.
As such, it has calculated that each of these consumers will need to ‘save’ an extra £135 on average for the industry to break even.
“Although the per person savings required to break even is now higher than we consulted (due to the exclusion of cryptoassets), we believe that the per person savings required is still relatively small and should therefore be achievable in the context of the high-risk investment market,” the FCA said in the policy paper.
The City watchdog also said providers of high-risk investment products collectively face a £19m bill to comply with the new regulations.
It also predicted collective costs of £554,000 for ongoing compliance measures, as well as increased funding costs and reduced revenue and profitability for businesses.
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However, the regulator said the benefits for firms would be: less risk of reputational loss from clients investing in unsuitable investments; Savings of £740,000 from loss of monetary/non-monetary incentive expenditure; and benefits from better confidence in the retail investment market.
“In our cost-benefit analysis we highlighted that we did not believe it was reasonably feasible to estimate the ongoing costs of decreased income/increased funding costs for companies and issuers as a result of our proposals,” he said. say the FCA.
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“This is because we do not know how much investment in high-risk investments will be reduced as a result of our proposals, and therefore how much income may decrease or funding costs increase for affected companies and issuers . However, we believe that strengthening our rules on high-risk investments will build confidence in UK markets and therefore increase growth and competitiveness in the long term.”