The Financial Conduct Authority (FCA) has outlined its approach to regulating the promotion and distribution of the Lifetime ISA (LISA).

The LISA is a product to allow people under the age of 40 to save or invest – either to provide a deposit for a first home, or save for retirement.

The FCA wants to regulate the LISA in the same way other ISA products are regulated, along with some additional protections that are designed to reflect the dual purpose of a LISA and the restrictions on accessing funds.

The organisation said its three key objectives are - to secure an appropriate degree of protection for consumers; to protect and enhance the integrity of the UK financial system; and to promote effective competition in the interests of consumers.

Under its proposed rules, firms will be required to give specific risk warnings at the point of sale, which include reminding consumers of the importance of making sure an appropriate mix of assets is held in the LISA.

The FCA has proposed that providers will have to offer a 30-day cancellation period after selling the LISA, and firms will also have to remind consumers of the early withdrawal charge – and any other charges.

Richard Parkin, head of pensions policy at Fidelity International, welcomed the guidance and said the main focus for LISA should be communicating the impact of the exit penalty.

He said: "We understand government's desire to discourage early withdrawals, but we remain unconvinced the penalty is necessary."

"There are clearly risks for firms from disgruntled investors who don't understand the penalty - no matter how clearly it is presented at the point of purchase – and it's important customers don't see the penalty as a provider charge or exit fee."

LISA was announced in the 2016 budget and the government plans to launch it in April 2017.

First published 18.11.2016

Linday.sharman@wilmingtonplc.com