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Transparency Task Force Attacks FCA and Sophisticated Investor/HNWI Status

This article represents the views of its author and not necessarily those of ShareSoc.

Following on from the BBC Panorama programme on the Blackmore Bond scandal the Transparency Task Force have launched an attack on the competence of the Financial Conduct Authority – see It includes a letter you can send to your Member of Parliament asking for some reform.

I agree with most of their recommendations on how matters can be improved.

One issue I would also raise is that the Panorama programme made it clear that risky and unregulated investments were sold to individuals who would not normally have qualified as “sophisticated investors” or as high net worth individuals, as is required.

It is possible to ‘self-certify’ yourself as a HNWI or a sophisticated investor. To self-certify as a HNWI you have to earn at least £100,000 per year or have net assets (excluding your property, pension rights and so on) of at least £250,000.

To self-certify as a sophisticated investor you must: have been a member of a business angels network for at least six months; or have made at least one investment in an unlisted security in the previous two years; or have worked in a professional capacity in the provision of finance to small or medium-sized businesses in the last two years or in the provision of private equity; or be or have been within the last two years a director of a company with a turnover of at least £1m.

These are quite low hurdles and as the investor is only making the declaration with no checks necessary or evidence provided it is wide open to abuse. The company accepting the certification only has to have a reasonable belief that it is correct.

The high net worth requirements should be raised substantially. However there should be an alternative method of certification which would require passing an online test or self certifying that you have significant experience in the industry or relevant qualifications.

There are simply too many cases of dubious investments being sold to unsophisticated investors who have no way to judge the prudence of the matter.

Roger Lawson (Twitter:  )

  1. Mark Bentley says:

    Whilst I fully support the idea of an online test to validate the competence of a prospective investor, I feel that the thresholds for HNWI status are arbitrary. Raised thresholds might allow a wealthy individual who is financially unsophisticated (such as an entertainer or a sportsperson) to qualify whereas a financially sophisticated individual, who is not particularly wealthy (such as me) might not. That is surely a nonsense?

  2. Roger Lawson says:

    I think the rules need considerable revision after some thought. Certainly not fit for purpose at present.

  3. NEIL TAYLOR says:

    I do question the self certification regime, this is a open door for abuse. To me, investors should have greater warning on products, independent valuation and checks on investment companies that is reported on a 6 monthly basis, full details of the promoters, their records in business and ratings applied to their investment offering. The system is flawed. The FCA “eyes wide shut” approach and their perimeter fence mentality is a cop out. They need to act quicker and response much faster (pro-active I would say) on regulated and unregulated investments. Investment of £5,000 plus must all be regulated in my opinion. Clearly, LC&F and Blackmore Bonds is out and out fraud, this is indisputable, and nothing is being done to recover assets and arrest and charge perpetrators of these crimes.

    • rogerwlawson says:

      I very much agree with the last comment. The FCA is more interested in protecting the interests of financial industry participants than the consumers of financial products. As usual it comes back to a management issue.

  4. Jeremy Prescott says:

    In 1970, I attended a creditors’ meeting of Davies Investments of Wimbledon as a 21 year old articled clerk. Davies Investments advertised its offering of 10% interest and predictably went bust, and the meeting had many elderly attendees who had lost their life savings. It is an affront that this sort of scam continues over 50 years later.
    Elements of a solution (i) a police/FCA/judicial review of the Blackmore Bond debacle, with prosecution of those involved if this so concludes (ii) the FCA to be police unregulated investments (iii) tougher self-certification requirements (iv) better education of the investing public, a task for us all including the financial press..

  5. Penny says:

    While I appreciate the spirit of what you are saying and also that “widows and retired folks” are disproportionately likely to have significant capital sums compared with other demographics (although arguably not compared with widowers?), I am uneasy with the potential for sexism and ageism in this phrase. Ageism in particular is often described as “the only remaining socially acceptable form of prejudice” and – given the demographic profile of ShareSoc members – it is in the interests of most of us to fight back against it!

    • Mark Bentley says:

      Fair point, Penny. Please could contributors be careful not to use language that is sexist or ageist, or otherwise discriminatory.

      • Roger Lawson says:

        I think you are being too sensitive on this matter. Pointing out the people most likely to be affected by the behaviour of rogues is not being sexist or ageist. It’s just facing up to reality.

        • marben100 says:

          The point is that it reinforces stereotypes that contribute to ageism and sexism. It would be wrong to assume that all widows and retired people are financially unsophisticated. After all, you’re retired yourself! Better to just say “financially unsophisticated”.

          • Roger Lawson says:

            The likely suckers need to be warned who they are. But they are not likely to be ShareSoc members.

  6. Cliff Weight says:

    I, like many others nowadays, am extremely conscious of the need for equality and diversity considerations. I do not agree that Roger’s use of “widows and retired folks” was both sexist and ageist. His comments have to be read in their context.

    The FCA have voiced their concerns about women and older people and those less sophisticated. eg see

    The JP Morgan study highlighted the lack of confidence of many women about investing.

    Leading opinion formers such as Elizabeth Pearson, Financial Educator, Simple Successful Stocks tell me that women often struggle with the knowledge and confidence to start investing . Elizabeth has reviewed our new (soon to be launched) Investing Basics videos and has provided this comment which will be in our Press Release: “Investing Basics provides simple, straight forward information in bite sized chunks on the what, why, when and how of investing in the stock market. It is presented clearly, with great graphics and a sense of humour. Women often struggle with the knowledge and confidence to start investing and this is an excellent resource to understand it and get going.”

    I reviewed the article and thought that the comments were evidence based. In light of this, I felt and still feel no changes to the article are necessary.

    I agree with Roger that ShareSoc should support the idea of protecting those investors less able to spot scams and bad investments, and not go overboard on profiling considerations.

    Please note these are my personal views and not necessarily those of ShareSoc.

  7. Cliff Weight says:

    Neil Taylor and Roger Lawson make good points about the FCA. The FCA has a lot of information on its website about “the perimeter” or in PLAIN ENGLISH (!) what it regulates and what it does not regulate.

    Here is an extract

    Our perimeter sets out what we do and don’t regulate. This report describes specific issues we see around it and action we’re taking in response. We update it once a quarter.

    What we regulate

    The UK financial services industry carries out a wide range of activities for UK and international clients. Some of this activity is regulated by the FCA and some is not. The Government and Parliament set the limits of our remit, or ‘perimeter’, through legislation.

    Our remit is set by Parliament

    The perimeter’s complexity and changes to financial services

    Whether an activity is within our perimeter can be complex. It is made more complex when new products and services are developed, or there are other changes in the way they are used or provided, which were not envisioned when a piece of legislation was written.

    Why harm can occur

    Harm can occur due to the development of new products, activities or services that sit outside our perimeter. This is because these will generally not be subject to our rules designed to prevent harm, and we have only limited powers to act when harm occurs outside our perimeter.

    Consumers may suffer harm if they wrongly believe they are dealing with an authorised firm or individual carrying out a regulated activity or wrongly think they will be able to get redress or compensation through the Financial Ombudsman Service or the Financial Services Compensation Scheme (FSCS). Our ScamSmart campaign aims to educate and inform consumers about the warning signs across a range of scams. Our Consumer Harm Campaign builds on and supplements this work.

    Harm could also occur if an unauthorised person pretends to be authorised, or if an authorised person conducts a regulated activity without the relevant permission from us to do so. Both are illegal, and consumers are at more risk of harm because that firm or individual has not gone through our Authorisations gateway and so has avoided our scrutiny.

    We know that consumers are often confused about what ‘FCA authorised’ means and what protections they have. While the regulatory perimeter will always be complex, we want to do more to help consumers understand the risks and their rights.

    My personal view is that there are strong arguments that the FCA remit is wrong and should be changed.

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