The introduction of a British Isa could raise challenges for firms complying with the Consumer Duty rules and regulations as it is “a very niche product”.
This is according to Aegon pensions director Steven Cameron, who believes the it would have a “particularly narrow target market”, which goes against the duty.
The Financial Conduct Authority (FCA) legislation that came into effect in July 2023 states providers must design products which offer value with a specific target market in mind.
During the Spring Budget 2024, chancellor Jeremy Hunt unveiled the British Isa.
It will come in the form of an extra £5,000 tax-free allowance to encourage UK retail investment. The existing Isa allowance is £20,000.
As Cameron said, the expected primary appeal of the British Isa is to individuals who already fully use their existing £20,000 Isa allowance.
He added: “Even for individuals ‘maxing out’ their stocks and shares Isas, there are questions over the appropriateness of increasing exposure to UK equities rather than a more geographically diversified portfolio. The Consumer Duty requires advisers to avoid causing foreseeable harm which will prompt consideration of past and anticipated future relative performance.”
Cameron said it is understandable that the chancellor is encouraging greater investment in UK companies to spur UK economic growth but a “specific new product may not be the right way of going about it”.
An option that the chancellor could explore “would be to disclose exposure to UK equity investment upfront and more prominently”. Cameron explained this “could be disclosed alongside other important aspects including investment risk profile and wider asset allocation approach”.
“Individual investors could then make informed decisions, perhaps with the help of advisers, on the extent to which they want to support the domestic economy while pursuing longer-term goals.”
As well as the British Isa launch, the chancellor said there would be a further consultation on Isa rules. Hunt had already spoken to 200 city representatives before announcing the British Isa.
