CP22/2 – FCA to Strengthen Financial Promotions Rules to Protect Consumers

The pandemic and the changing investment environment have exacerbated the proportion of consumers holding high-risk investments due to long-term social and economic factors and the distribution of promotions to a mass audience via online platforms and social media, the latter being an area on which the FCA has previously issued guidance (see FG15/4). Therefore, the FCA states that it is paramount the financial promotion regime is fit for purpose and that consumers understand the risks associated with these investments.

This has led to the FCA publishing  ‘CP22/2: Strengthening our financial promotion rules for high-risk investments, including cryptoassets’, which builds on questions asked in Discussion Paper DP21/1 about how the FCA could strengthen financial promotion rules. The proposals outlined in CP22/2 are a key part of the FCA’s Consumer Investment Strategy, which addresses the harm from consumers investing in high-risk investments that do not match their risk tolerance. The Strategy sets out the FCA’s 3-year plan to address harm in the consumer investment market by achieving a target of a 50% reduction in the number of consumers in high-risk investments by 2025.

Additionally, the proposals also complement the work by HM Treasury to improve the financial promotions regime, including the proposed new gateway, section 21 (s21). S21 involves authorised firms who approve the financial promotions of unauthorised firms (‘s21 approvers’), extending the regime to promotions of qualifying cryptoassets and, importantly, consulting on reforms to the longstanding exemptions for high-net-worth and sophisticated investors.

In CP22/2, the FCA proposes to make changes in the following areas:

  1. Classification of high-risk investments
  2. The consumer journey to high-risk investments
  3. Strengthening the role of firms approving and communicating financial promotions
  4. Applying the financial promotion rules to qualifying cryptoassets


The FCA states that  high-risk investments are high-return investments “suitable for experienced investors who understand the risks and are prepared to lose all of the money invested.” The investments referred to are those subject to existing marketing restrictions under the FCA’s rules, including: investment based-crowdfunding (IBCF), peer-to-peer (P2P) agreements, other non-readily realisable securities (NRRSs), non-mainstream pooled investments (NMPIs), speculative illiquid securities (SISs), and cryptoassets when they are brought within the financial promotion regime.

Who CP22/2 applies to

  • Consumers, consumer organisations, and intermediaries distributing investments to consumers (including IBCF platforms)
  • Authorised firms that:
    • “approve financial promotions for unauthorised persons (section 21 approvers), whether for high‑risk investments or otherwise”
    • “communicate financial promotions relating to investment business”
  • Issuers of non‑mainstream pooled investments, speculative illiquid securities and non‑readily realisable securities
  • Peer‑to‑peer (P2P) platforms
  • firms operating in the cryptoasset market
  • trade bodies for the IBCF, P2P, and cryptoasset sectors

The FCA notes that the consultation will also be of interest to:

  • authorised firms, investment companies, and trade bodies in the consumer investments sector
  • issuers of other types of investments
  • financial advisers
  • asset managers “with experience of managing illiquid, long‑term assets”
  • potential investors in long‑term asset funds

Classification of high-risk investments

Many firms have experienced difficulty navigating existing market restrictions and understanding which ones apply to them. As a result, the FCA intends to rationalise the way it categorises high-risk investments in COBS 4 under the terms ‘Restricted Mass Market Investments’ (RMMIs) and ‘Non-Mass Market Investments’ (NMMIs); SIS rules will be revisited later in 2022. The diagram below shows the summary of the new categories:


The consumer journey

The FCA is concerned that too many consumers are just ‘clicking through’ and accessing high-risk investments without understanding the risks involved. The FCA’s existing marketing restrictions are intended to ensure consumers only access high risk-risk investments knowingly, but consumer research shows the FCA’s approach is not working as well as it should. The FCA proposes a package of measurements to strengthen it by making changes to the following areas:

  • Strengthening risk warnings, including prominence
  • Banning monetary or non-monetary inducements to invest
  • Introducing positive frictions for first time investors with a firm
  • Improving client categorisation for high-net-worth, sophisticated, or restricted investors
  • stronger appropriateness tests for RMMIs

Equally importantly, the FCA is proposing that firms maintain records to demonstrate the effect of these proposals.  This includes data on whether consumers proceed to access the investment after each intervention, whether they click the link in the risk warnings, and the outcomes of appropriateness assessments and client categorisation.  It is not expected that this data will be routinely reported to the FCA, but the expectation is that firms will be able to report it if requested to do so.

Strengthening the role of firms approving and communicating financial promotions

The FCA wants to strengthen the role of s21 approvers as they play an integral role in enabling unauthorised issuers of high-risk investments to reach consumers. The FCA wants to develop a robust regime to complement the proposed s21 gateway which, when implemented, will hold s21 approvers to high standards. This will ensure approving firms have the relevant expertise in the promotions they approve and the overall quality of financial promotions in the market is high.

Of particular interest is the expansion of the approver’s relationship with the firms for whom they approve promotions.  The FCA proposes to require s21 approvers to have a continuing relationship, with those for whom they approve promotions, for the life of the promotion and to actively monitor the promotion after approval for any changes that might mean the promotion no longer complies.  This goes beyond the current requirements in COBS 4.10.2R(2).

Applying the financial promotion rules to qualifying cryptoassets

HM Treasury has confirmed it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets. The FCA is consulting on how it will categorise the cryptoassets once they are brought within the financial promotion regime. The FCA intends to apply the same rules to cryptoassets as they do with NRRS and P2P agreements (referred to as RMMIs). Nevertheless, the FCA does not propose that it should be possible for ‘Direct Offer’ Financial Promotions of qualifying cryptoassets to be made to self-certified sophisticated investors.

Financial promotions relating to cryptoassets will need to comply with the existing financial promotions rules in COBS 4. This includes both the requirement for promotions to be clear, fair, and not misleading, and the proposed changes in the consumer journey into high-risk investments.

CP22/2 – Next steps and timeframes

The feedback for the consultation closes on 23 March 2022 ; the FCA is expected to publish the Policy Statement and final rules in summer 2022. Firms will have three months from the publication of the final rules to comply with the new requirements for the consumer journey and s21 approvers. For requirements relating to cryptoasset promotions, the rules will apply from the date qualifying cryptoassets are brought within the financial promotion regime.

How Complyport can help

At Complyport, we support firms by providing guidance & advice on the FCA’s financial promotions rules and regulation, and by reviewing specific proposed financial promotions for firms on a regular basis.

Additionally, Complyport helps firms understand and comprehend the impact that new, upcoming, and proposed regulatory changes will have on their business. We can undertake gap analysis and impact assessments, reviewing firms against regulatory changes and providing a detailed report and roadmap that outlines the actions needed to meet the new rules.

Complyport is also a specialist in assisting cryptoasset firms with Crypto-Asset Service Providers Registrations with the FCA. We can project manage the registration application and assist you with your ongoing compliance and financial crime support.

To discuss how Complyport can support you, please contact us now to book in a free consultation.

About Complyport

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