UK investors may have to sit a test to buy a high-risk product

By Huw Jones

LONDON (Reuters) - Investors may have to sit a test before they can buy high-risk financial products, Britain's Financial Conduct Authority said on Thursday as it seeks to combat online scams and apply lessons from the collapse of investment fund London Capital & Finance.

"We are concerned that too often consumers are investing in high-risk investments they don't understand and can lead to significant and unexpected losses," Sheldon Mills, the FCA's executive director for consumer and competition, said in a statement.

The collapse of London Capital & Finance (LCF) in 2019 led to taxpayers having to pay up to 120 million pounds ($167.33 million) to cover compensation for investors and the FCA banned the unregulated mini-bonds it had sold.

Since then, the number of people buying financial products without advice has surged as record low interest rates have induced those with savings to use time at home during COVID-19 lockdowns to look online for ways to make money.

"There is now a high prevalence of online adverts, as well as low cost/no fee online investment platforms," the FCA said.

FCA High Risk investments graphic https://fingfx.thomsonreuters.com/gfx/mkt/oakpewkropr/FCA%20High%20Risk%20investments%20graphic.PNG

The watchdog said it has limited powers over many issuers of high-risk products because the activity is unregulated, and it was focusing on tougher rules for marketing, which is regulated, as well as proposing to create new categories of investments that would face restrictions.

"Other suggestions in the paper include requiring consumers to watch educational videos or to pass an online test to demonstrate sufficient knowledge about financial products," the FCA said.

Simon Morris, a partner at CMS law firm, said the FCA has been stung into action by its mishandling of LCF, but new laws would be needed to bring unregulated activity under the watchdog's remit.

"Legislative change is needed to tighten statutory exemptions which give unregulated firms a free pass to promote their goods and services without any supervision at all," Morris said.

($1 = 0.7172 pounds)

(Reporting by Huw Jones; Editing by Edmund Blair and Barbara Lewis)