Consumer Duty Changes: Strengthening The FCA’s Financial Promotion Rules

In our February 2022 article on the FCA’s PS22/10, we examined the importance that the FCA was expected to place on addressing the risk of harm posed to consumers investing or considering investing in high-risk investments.

This importance has now been confirmed by way of the FCA’s recent policy statement PS22/10, which details how the FCA intends to adopt a more rigid approach with regards to the financial promotions regime.

In addition, the policy statement confirmed the FCA’s intention to expand the financial promotions regime to include cryptoasset promotions.

PS22/10 comes in a timely manner, given that Financial Promotions are one of the key areas detailed in the FCA’s Consumer Duty rules. The FCA sees it’s enhanced rules and requirements around financial promotion as a minimum standard that firms promoting high‑risk investments to seek to achieve. Through these strengthened rules, the FCA aims to raise the overall standard of high‑risk investment promotions. However, what the FCA would ideally like to see, is evidence that firms are thinking for themselves when it comes to delivering good consumer outcomes and consider where and how they could best go above and beyond the standards set by the FCA.

PS22/10 – FCA Goals:

PS22/10 brings heavy focus around the following areas:

  • The FCA’s classification of high-risk investments
  • The consumer journey into high-risk investments
  • Strengthening the role of forms approving and communicating financial promotions

The FCA expects firms to comply with these rules from the applicable dates as noted below. Relevant firms must follow these rules diligently, as the FCA will be closely monitoring their implementation and the level to which firms achieve compliance to these rules, and warning of taking action where firms are found in breach of the rules.

Significantly, these changes take into account the current hardships faced by consumers with regards to high-risk investments, such as:

  • Higher inflation rates which have contributed to negative real returns across many mainstream investments, potentially pushing consumers to invest in high(er)-risk investments for higher returns
  • Rising cost of living diminishes the amount of potential losses consumers can absorb
  • Consumers investing in high-risk products not aligned with their risk tolerance, possibly resulting in higher monetary risk and decreases in market confidence

Who is affected by PS22\10:

The updated rules in the financial promotion regime will directly concern:

  • Consumers investing, or who are considering investing in high-risk investments
  • Section 21 approvers
  • Issuers of non-mainstream pooled investments, speculative illiquid securities and non-readily realizable securities
  • IBCF platforms and other intermediaries distributing high-risk investments to consumers
  • Loan based P2P platforms
  • Trade bodies for the IBCF and P2P sectors

Further, the final rules in PS22/10 will be of interest, amongst others, to firms operating in the scope of cryptoasset sector, financial advisers, firms in the investments and consumer investments sector, as well as Long-Term Asset Fund managing firms.

Next steps:

As mentioned above, the FCA stresses two key dates with regards to the updated rules:

  • Rules related to the main risk warnings for financial promotions of high-risk investments will take effect from the 1st December 2022
  • All other rules will be effective from 1st February 2023 onwards

Further, the FCA stresses that whilst cryptoasset promotion remain outside the current financial promotion regime, it is within the Treasury’s intention to legislate and bring certain cryptoassets into the scope of the financial promotion regime.

How can Complyport Help?

If this article has raised any questions about the upcoming changes in the financial promotion rules, or you think your firm may require assistance, please contact Jonathan Greenstein via jonathan.greenstein@complyport.com to book in a free consultation.

About Complyport

Complyport is a market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

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Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Our clients tell us we live our values; we are driven, agile and collaborative.