FCA is planning to let firms gain more flexibility when dealing with professional clients

The Financial Conduct Authority (FCA) has moved to establish clearer distinctions between retail and professional investors as part of an initiative to strengthen Britain’s investment culture and maintain the country’s standing as a global financial center.

The regulator announced on Monday, December 8, a package of measures aimed at giving firms more confidence when dealing with experienced clients. The new designation framework is also expected to make the process of how retail investors access and understand investment products easier.

How will the UK FCA differentiate retail and professional investors?

Under the UK’s proposals, firms will be able to operate with professional investors outside the constraints of retail regulations, including the Consumer Duty. It ensured that the threshold to be qualified as a professional investor remains deliberately high. This way, only those with substantial experience, professional advice, or genuine capacity to bear risk are excluded from retail protections.

The changes remove what the FCA described as “arbitrary tests” in the current classification system, giving firms more direct responsibility for ensuring clients genuinely meet professional thresholds.

A new straightforward pathway will allow wealthy and experienced individuals to opt out of retail protections, though firms must demonstrate that clients provide informed consent to this arrangement.

Simon Walls, the FCA’s executive director of markets, said the measures were intended to “support investment risk culture right along the spectrum”, ensuring retail customers receive material that informs and engages them, while giving professional markets a brighter line defined by contracting parties, informed consent, and proportionate oversight.

Retail disclosures will be simpler

For ordinary investors, the regulator is making what it calls a “decisive shift” away from prescriptive templates that consumers rarely find useful. Firms will gain greater freedom to innovate in how they communicate potential returns, costs, and risks to customers, replacing the European Union-derived PRIIPs and UCITS disclosure requirements with a new Consumer Composite Investments regime built around Consumer Duty principles.

The FCA has also launched a consultation seeking views on how regulation can better support consumers to access investments that meet their needs, particularly as policymakers consider widening access to private markets for retail investors.

The discussion paper signals the regulator’s willingness to challenge perceptions of risk in a country where 55% of adults remain unwilling to take on the perceived risks of investing, according to recent abrdn research.

Analysis by Aberdeen found that half of British household wealth outside pensions is tied up in property, and 15% of the population held cash. Britain holds the third-highest proportion of wealth in both property and cash among G7 nations.

According to the asset manager’s report, if British adults allocated wealth to investments at the same rate as Americans, it could unlock up to £3.5 trillion for capital markets over the long term.

So, it makes sense that the FCA is working to reduce the barrier to entry and encourage more people to invest in a safe and regulated manner.

The regulatory package also includes measures specifically benefiting investment companies, with the FCA deciding not to require other funds to account for investment company costs when investing in them.

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