The UK's Financial Conduct Authority (FCA) has clamped down on misleading adverts that encourage investing in high-risk products.

Its finalised rules, released today, state firms approving and issuing marketing must have "appropriate expertise". Firms marketing some types of high-risk investments will also need to conduct "better checks to ensure consumers and their investments are well matched". 

The regulator also said firms need to use "clearer and more prominent" risk warnings and certain incentives to invest, such as ‘refer a friend bonuses', have been banned. 

The FCA said the move was part of its Consumer Investments Strategy, which aims to reduce the number of people who are investing in high-risk products that do not reflect their risk appetite. 

It said the policy was brought about after concerns were raised that a "significant number of people who invest in high-risk products do not view losing money as a risk of investing and invest without understanding the risks involved". 

In the last year, the FCA said it had intervened in significantly more financial promotions to prevent harm. In the year to the end of July 2022, 4226 adverts were amended or withdrawn after intervention, it said.

The stricter rules announced on 1 August will not apply to cryptoasset promotions. These will be governed by separate rules after the government confirms in legislation that cryptocurrency marketing will be overseen by the FCA.

FCA executive director, markets Sarah Pritchard 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. 

"Our new simplified risk warnings are designed to help consumers better understand the risks, albeit firms have a significant role to play too. Where we see products being marketed that don't contain the right risk warnings or are unclear, unfair or misleading, we will act. 

"This is even more important now because increases in the cost of living could prompt people to chase higher investment returns which may prove risky."  

The FCA has also launched a consultation which could see Long Term Asset Funds (LTAFs) marketed to a wider group of retail investors and schemes in future. 

The proposals out for consideration would provide access to non‑traditional investments, which consumers might use to diversify their portfolio and for potentially higher returns, while still offering strong consumer protection.

The FCA said it wanted feedback by 10 October and would confirm its final rules early next year. 

Nathan Long, senior analyst at Hargreaves Lansdown, said: "With a sharp focus on understanding consumer behaviour, the FCA is introducing pragmatic rule changes to clamp down on retail investors buying high-risk investments. The attention has rightly been placed on improving consumer understanding at the point of their decision-making.

"Its thinking also extends to the newly launched Long Term Asset Funds which allow opportunities to access otherwise hard to reach investment opportunities."

He added: "The FCA's proposals for LTAFs use consumer tested risk warnings, knowledge and experience checks and limits for those buying LTAFs to 10% of their portfolio.

"All in all, this is a thoroughly sensible set of measures and strikes the right balance between reducing detriment and providing investment opportunity. The obvious next step having clamped down on selling of higher risk investments is to free up the rules to better help firms explain mainstream investments to would be investors."