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Lesson eight: Investment regulations explained

Ok, so regulation isn’t the most exciting topic but when it comes to investing, you need to make sure you’re savvy with it to save you from financial upset down the line. Why? Well, not all investments are equal. At one end of the spectrum you have mainstream investments such as funds and shares, which you buy from regulated companies like Bestinvest. At the other end are out-and-out illegal financial scams, and in between are investments such as cryptocurrencies that while perfectly legal aren’t regulated or monitored in the same way as the mainstream investments.

Introducing the Financial Conduct Authority

The Financial Conduct Authority (FCA) is the conduct regulator for financial services firms and financial services industry in the UK – yes, they’re as important as they sound. Essentially, they keep an eye on everything investment companies do. It’s an independent public body funded by charging the firms that they monitor, like Bestinvest. They make sure companies:

  • Protect investors and put customer protection above their own profits or income
  • Act with integrity
  • Engage in a healthy amount of competition with other providers to make sure investors are always getting a good deal
  • Treat customers fairly

The golden rules

The FCA makes sure companies meet certain standards before authorising them and regulate certain activities. Companies that are regulated by the FCA must comply with strict rules, including:

  • Any individuals working for the company who provide financial or investment management advice must have certain qualifications and be assessed by the firm before carrying out regulated activities
  • All regulated firms have to show that fair treatment of clients is at the heart of their business. Investors can and should expect them to provide financial services and products that are suitable for their needs
  • They must arrange adequate protection for any client money they look after


Another requirement of FCA-regulated companies is that their communications must be ‘clear, fair and not misleading’. This applies to everything from big billboard adverts on the M1 to webpages like this one.

In some circumstances, companies must include ‘risk warnings’ on communications and marketing. As the name suggests, risk warnings explain the main risks for a particular investment, product type or course of action. For example, you might have seen “Past performance is not a guide to future performance” at the bottom of investment company adverts.

It’s really important to pay attention to risk warnings. They:

  • Explain the nature of the risks involved in the product type
  • Highlight possible negative consequences of an investment to provide a balanced view
  • Provide information to help you decide whether an investment is suitable for you and whether you can afford to take any risks it comes with

What we’re saying is that it’s risky to ignore the risks. Makes sense…

You’re protected

In the rare event that an authorised company goes bankrupt or (even rarer) runs off with your money, you may be covered by the Financial Services Compensation Scheme (FSCS). Like the FCA, the FSCS is funded by regulated firms like Bestinvest, and can cover you up to £85,000 if disaster strikes.

If you feel like an FCA-regulated investment company has mis-sold you an investment and you’re not happy with their response to your complaint, you have the right to approach the Financial Ombudsman Service (FOS). You may be entitled to compensation if your complaint is upheld by the FOS.

But bear in mind that all investments, whether regulated or not, can go down in value as well as up. You won’t get your money back just because you chose investments that haven’t done very well.

How can you check if an investment firm is regulated?

It’s easy to check if a company is regulated. If they are, their details will appear on the Financial Services Register. All you need to do is enter the name of a company, person, product, reference or postcode in the search bar. If their details appear and show as ‘Authorised’, they’re regulated and if they don’t, they’re not.

Some products are unregulated

In recent years there’s been more and more news coverage about people losing money in unregulated products. Some of the most well-known examples include overseas forestry, carbon credits or storage containers.

With savings account interest rates at historic lows, these exotic-sounding investments have tempted many people with the promise of big profits. But the reality is usually very different.

Unregulated products aren’t protected

Unregulated product such as Unregulated Collective Investment Schemes and alternative investments such as bitcoins, wine, land and art are not regulated by the Financial Conduct Authority. This means they do not offer the same protections as regulated products. Unregulated products are usually suitable for experienced investors who understand and can tolerate higher risks.

Speak to an expert

If you’re thinking of investing in unregulated investments, it’s a good idea to talk to the professionals first. Contact one of our friendly experts and get started.

The rise of cryptocurrencies

It would be almost impossible to do a lesson on regulation and not talk about cryptocurrencies such as Bitcoin or Ethereum. These are some of the most well-known unregulated investments, and are hotly debated in the investment world.

Fun fact for you, they’re actually not an investment in the strictest sense. In fact, they are a form of currency, as the name suggests. All currencies rise and fall in value – you can see this when the exchange rate goes up or down. But cryptocurrencies are subject to much more extreme changes in value than the likes of the pound or US dollar. You might have seen news reports of the price of a bitcoin doubling (or halving) in a single day – it’s a bit of a yo-yo. Although some people have hugely profited from buying cryptocurrencies, others have lost everything.

Alongside the extreme rises and falls in value, many cryptocurrency exchanges have suffered high-profile security breaches. On dozens of occasions, hackers have stolen millions of pounds worth of cryptocurrencies, never to be seen again. And because there is no official regulator such as the FCA overseeing them, there is no one to turn to if the money disappears, so there is little or no chance of ever seeing it again.

Of course, it’s not just cryptocurrencies that can lose you money – all kinds of investments can fall in value as well as go up. But the point is that regulated products tend to be less volatile and come with more protection if something bad happens.

Beware of investment scams

There are a worryingly large number of unscrupulous or fake investment schemes out there which are designed purely to steal investors’ money. In other words, investment scams.

It would be easy to think that victims of these scams are naïve, vulnerable and don’t do their homework, but this could not be further from the truth. The FCA conducted a poll of over 2,000 adults in the UK and found that*:

  • £87,000 is lost every day to online investment scams
  • Compared to individuals over 55, people under the age of 25 are six times more likely to trust an investment offer they have seen on social media
  • 23% would look at customer reviews of an investment company and if they were positive, they would trust them

Cold calling

One of the oldest and most common forms of investment scam is the (annoying) cold call. A salesperson calls you out of the blue, offering you an exclusive investment opportunity that promises to make you rich – usually with no risk of losing money. You know the saying – if it sounds too good to be true…

Usually they pressure you to make a decision quickly and aren’t likely to give up easily. It goes without saying that these investments opportunities are extremely high-risk at best, and outright theft at worst.

The impact of social media

Love it or hate it, social media is here to stay. We all know that it has the power to do good or bad, but unfortunately it is often used by investment fraudsters.

It’s true that the camera never lies, but people do. Instagram is full of images of people enjoying the high life ‘all because they made one simple investment.’ The reality is that some of these images are fake – they have either been stolen or altered to look completely different from the original (did you know you can create your own private jet with a green screen?) – most of us are familiar with the miracles Photoshop can work.

The captions often promise a massive return on an investment, which will supposedly be paid out in a short space of time. Sounds too good to be true? Again, it usually is. This is one of the golden rules of investing. If it doesn’t sound realistic, be extremely careful before you part with your money.

Celebrity endorsements

Some scammers also use fake celebrity endorsements on their social media accounts to make their scams look more credible. For example, actor Hugh Jackman’s image has been used to promote a fake cryptocurrencies investment scheme.

If you come across an endorsement like this, you really need to ask yourself, ‘why would this person attach themselves to something like this?’ Why would the Greatest Showman, a multi-millionaire, Hollywood actor promote a product that is in no way linked to their profession? The most likely answer is that they wouldn’t.

We’re not saying that all celebrity promoted products are fake, but you should think long and hard before parting with any money in an investment and not just take their word for it. After all, it might not even be their word!


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