Refer-a-friend bonuses banned in clampdown on high-risk investments

The City watchdog has banned companies from luring customers with “refer-a-friend” bonuses, amid fears that the cost-of-living crisis will push savers into high-risk investments.

The Financial Conduct Authority has launched a fresh crackdown on risky investments that promise high returns, warning that some companies have been using misleading adverts to tempt investors. 

Under the new rules, companies will no longer be able to offer rewards for customers who persuade their own friends and family to invest after December. The FCA has warned that a significant number of those who invest in these high-risk schemes do not fully understand the risks involved. 

In total, 4,226 misleading adverts for these types of investments have been amended or withdrawn in the past year, as a result of the FCA’s fresh scrutiny. Adverts will now have to include more explicit risk warnings to potential investors.

However, critics have warned the watchdog is not doing enough to protect investors. Gaps in the new rules mean in some cases consumers may be duped into believing complex and unregulated financial deals have been approved by the regulator when they have not been.

Mark Taber, a consumer campaigner of Fixed Income Investments, said it was a “step in the right direction” but that vulnerable people, including the elderly and those with mental health problems, were often directly targeted. 

“There needs to be specific provisions to protect these consumers from high risk investments which are often nothing other than frauds or scams,” he said. “Strict enforcement of the new rules will be key in order to avoid rogue introducers and advisers continuing to gloss over enhanced risk warnings.

The new rules will also not to apply to digital investments known as “cryptoassets”, which are known for their risky nature and growing popularity. The FCA confirmed it would issue marketing rules for these investments once the Government confirmed in legislation that these assets are under the watchdog’s remit. 

Sarah Pritchard of the FCA warned the rising cost of living could prompt people to chase higher investment returns, which could in turn leave many exposed to losses. 

“Where we see products being marketed that don’t contain the right risk warnings or are unclear, unfair or misleading, we will act,” she said. “We want people to be able to invest with confidence, understand the risks involved, and get the investments that are right for them which reflect their appetite for risk.” 

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