UK regulator: Young investors taking on lots of risk

The M1 Finance website. The FCA said bitcoin and other cryptocurrencies were seducing new consumers who acknowledged enjoying the thrill of investing and not being able to absorb their losses. — Bloomberg

LONDON: A new generation of young consumers, often influenced by social networks and using trading apps, are plumping for high-risk investments, Britain’s financial markets regulator warned on March 23.

The Financial Conduct Authority said bitcoin and other cryptocurrencies were in particular seducing these new consumers who acknowledged enjoying the thrill of investing and not being able to absorb their losses.

Sheldon Mills, who heads up the consumer and competition division at the FCA, said that many of the investment products meet the needs of consumers.

“But we are worried that some investors are being tempted – often through online adverts or high-pressure sales tactics – into buying higher-risk products that are very unlikely to be suitable for them,” he said.

The FCA’s report comes on the heels of retail investors organising on social media to drive up the price of shares of video game store chain GameStop, causing a frenzy on Wall Street as some prominent hedge funds that had speculated on the share price falling got stuck with massive losses.

Growing numbers of investing influencers have appeared on social media sites such as Twitter, Reddit, Instagram and TikTok as well as the video platform YouTube.

“The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest,” said the FCA.

Moreover, it noted that these high-risk investments are unsuited for many of these consumers as 59% acknowledged a significant investment loss would have a fundamental impact on their current or future lifestyle.

Other survey questions revealed that many did not understand the risks of their investments.

The FCA survey of over 500 people found that the new investors were more diverse, with more women, people under the age of 40 and from minorities.

“The warning from the FCA shows just how concerned it is that the crypto wild west could have a serious impact on the financial stability of consumers who dabble in products they don't fully understand,” said Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown brokerage.

She said of particular concern was that these consumers admitted to being influenced by social media and that many “appear to be thrill seekers, investing for a challenge, for competition and for the novelty factor”. – AFP