WIREDGOV

The Financial Services Authority (FSA) is taking action against penny share dealers after finding that older people are being targeted with high pressure sales tactics.  

So far this year, the FSA has ordered eleven firms out of the penny share market until they overhaul their business model and prove they no longer pose a risk to consumers. Six of those firms have now ceased trading completely.

Lesley Titcomb, director, small firms and contact division said:

"It is totally unacceptable to have consumers pressurised into buying shares. It is all the more disturbing when the risks of those shares have not been set out clearly.

"Our intensive supervision is setting high standards for firms to meet, and the warning to any such firm which has yet to receive a visit from us is that they should get their house in order.

"Quite simply, if firms do not treat their customers fairly, they will not be operating in the market."

The work found that certain stockbrokers targeted people who already own shares, usually people over the age of 50 years, some of whom may have acquired a few shares through privatisations. In some cases the brokers were paid commission to sell a particular share which was then aggressively marketed to consumers regardless of whether or not it was suitable for them.

Consumers who are thinking of buying penny shares are reminded of four simple measures to help protect themselves:

• Challenge the advice a broker gives you. Ask why a particular share is suitable for your particular circumstances
• Research and verify that advice
• Make sure you know the risks attached to the shares
• Ask what commission the broker will get for arranging the sale

The work will continue into the autumn and the sales practices of Contracts for Difference (CFDs) will also be part of the focus. CFDs are investments which allow people to speculate on the movement of share prices.  They are extremely complex, and investors could lose more than their original stake. 

The FSA will not hesitate to refer firms and their senior management to enforcement if unacceptable practices are found.

Notes for editors

1. Penny shares are investments with a low market price and not traded on the main stock exchange. They are very high risk and difficult to sell on.
2. Contracts for Differences (CFDs) are very high risk products where customers are invited to speculate on whether the price of a share or investment will go up or down.
3. Consumer information on penny shares can be found on the moneymadeclear website.
4. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; securing the appropriate degree of protection for consumers; and fighting financial crime.
5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.