Less jargon, more advice: FCA rises to pro-growth challenge

With a flurry of announcements ahead of the new year, the FCA is rising to the government’s growth mandate, writes Ali Lyon.

For many of the men and women in charge of the UK’s largest financial regulator, a grey cloud will have hung heavy over any festivities last Christmas.

Just a day before the seasonal break got under way, the Prime Minister, Chancellor and then business secretary Jonathan Reynolds had written to the Financial Conduct Authority (FCA) with an exacting demand for the new year: produce a batch of proposals that would help ministers achieve their ‘number one mission’ of kickstarting sustained economic growth.

The Christmas Eve missive, sent to more than 10 of Britain’s largest regulators, laid down the gauntlet to the likes of the FCA, Ofcom and Competition and Markets Authority for a radical shake-up. The old watchdog ways – of demanding more information of their sectors’ firms, demanding more reports on more areas in a bid to protect consumers – was over. Their new mandate, the letter read, was simple: “every department and every regulator should prioritise growth“.

A little shy of a year later, and the FCA’s top brass will hope they have done enough to stave off a second festive dressing down from their political masters in as many years with a flurry of December announcements. Fresh off the back of its banking counterpart slashing lenders’ capital requirements to coax out more growth-inducing loans, the City regulator has unveiled the first announcements of a self-professed “bumper package” of its own pro-growth measures.

In a bid to reawaken an investment culture among risk-averse Brits, the regulator said it would no longer force trading platforms to publish the off-putting, jargon-filled language associated with investment communications. That means fewer gloomy warnings that customers’ “capital is at risk” or that their investments “can go down as well as up”.

Retail shake-up will help inform and engage – FCA

Instead, consumers weighing whether to allocate a portion of their hard-earned nest eggs into a FTSE 100 company or a fund can expect fresher, more engaging adverts promoting wealth management services that are easier to use.

According to Simon Walls, executive director of markets at the FCA, the move – announced on Monday – ensures “firms can compete to give retail customers material that informs and engages them”.

Within the same package, the watchdog also clarified its definition for a ‘professional’ investor, in a bid to free up burdensome reporting standards on trading platforms and investment firms. Absent a clear delineation, firms have erred on the side of caution, barring some clients from sophisticated products and placing on themselves all manner of additional compliance requirements.

The reception from the City has been positive.

Rachel Vahey, head of public policy at AJ Bell, said the FCA “should be given credit” for balancing information on risk versus reward. Emma Wall, chief investment strategist at rival investment platform Hargreaves Lansdown, pointed to her firm’s own research that proved the more evenhanded communication of risk should “have a tangible impact on people’s willingness to invest”.

Should it work, the reward is great. According to FCA figures, three in five people with savings worth more than £10,000 stash away over 75 per cent of it in cash. Not only does this often get eroded by inflation for the saver, but it means UK companies are starved of investor capital. Unlocking that cash – which together is well into the hundreds of billions of pounds – would go a long way to breaking that doom loop, making companies, savers and the country at large, richer.

“I’d describe them as part of the mood music to encourage investing rather than a game changer,” said Charles Hall, head of research at Peel Hunt. “There has been too much jargon and too much emphasis on risk rather than potential returns.”

Other pro-growth measures to come

Fortunately for Hall, the measures announced on Monday are merely an amuse bouche for a raft of others. On Thursday, the City watchdog is expected to put some meat on one of its flagship pro-growth reforms: the so-called ‘targeted support’ regime.

The announcement represents one of the most significant milestones of the plan which, first announced in June, promises to axe rules prohibiting investment firms from addressing the 91 per cent of UK households who don’t take or can’t afford financial advice.

All of which follow a slew of other pro-growth reforms unveiled in the last few months, ranging from the embrace of cryptocurrency tracker funds, streamlining regulation on the UK’s mutual industry and relaxing rules the watchdog applies to short-sellers.

James Ashton, chief executive of the Quoted Companies Alliance, told City AM: “This package of measures taken together, I hope, shows that there is a concerted effort to really revive retail investment in the UK.”

This year, only FCA boss Nikhil Rathi will know whether, unlike last year, they are enough to spare his watchdog from another yuletide dressing down.