Investment firms offering ‘high risk’ products, including peer-to-peer lending platforms, will need their customers to invest an additional £135 to break even after new rules are introduced.
The Financial Conduct Authority (FCA), which unveiled its crackdown the marketing of high-risk products today, estimates that 142,000 consumers will purchase high-risk investments – excluding cryptoassets – for the first time, or increase their holdings in these, per year.
As such, it has calculated that each of these consumers will need to “save” an additional £135 on average for the industry to break even.
“Although the per person saving that needs to be realised to break even is now larger than we consulted on (because of the exclusion of cryptoassets), we consider that the amount per person that needs to be saved is still relatively small and as such it should be achievable in the context of the high-risk investment market,” the FCA said in the policy document.
The City watchdog also said that providers of high-risk investment products collectively face a £19m bill to comply with the new regulations.
Additionally, it predicted collective costs of £554,000 for ongoing compliance measures, as well as increased financing costs and reduced revenue and profitability for firms.
However, the regulator said the benefits for firms would be: less risk of loss of reputation from customers investing in inappropriate investments; £740,000 savings from loss of monetary/non-monetary inducement expenditure; and benefits from improved trust in the retail investments market.
“We outlined in our cost benefit analysis that we did not think it was reasonably practicable to estimate the ongoing costs of decreased revenue/ increasing financing costs for firms and issuers as a result of our proposals,” the FCA said.
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“This is because we do not know by how much investment in high-risk investments will reduce as a result of our proposals, and therefore by how much revenues may decrease or financing costs increase for firms and issuers that are affected. However, it is our view that strengthening our rules on high-risk investments will build trust in UK markets and by implication increase long-term growth and competitiveness.”