FCA Proposes Stronger Rules on Financial Promotions

On December 6, 2022, the Financial Conduct Authority (“FCA”) launched a Consultation Paper (CP22/27: Introducing a gateway for firms who approve financial promotions) proposing new measures to tackle illegal, unfair, or misleading financial marketing.

Background

On 20 July 2022, HM Treasury introduced the Financial Services and Markets Bill (the “Bill”) to Parliament. This Bill includes provisions to amend the Financial Services and Markets Act 2000 (“FSMA”) to create the regulatory gateway for approvers of financial promotions. The Treasury envisioned that this gateway would lead to several improvements to the regulatory framework in this area, including enhanced oversight of the approval market by the FCA and an improved standard of approvals.

Hence, the FCA’s Consultation Paper broadly supports these proposed legislative changes, setting out how to operationalise the new gateway.

Why is the FCA Changing the Rules and What is the Gateway?

  • The proposed reforms further signal the FCA’s commitment to set higher standards across financial services to give consumers the confidence to make financial decisions based on accurate and relevant information.
  • The new measures aim to enhance consumer protection and ensure that the FCA can act quickly to stop harmful financial promotions communicated by unauthorised firms. This includes companies operating in the areas of high-risk investment and Buy Now Pay Later. The proposed changes complement and enhance the new consumer duty principle that firms need to act to deliver good outcomes for retail customers at all times.
  • Moreover, the proposed measures further build on the FCA’s work on strengthening rules around advertising for high-risk investments and being more assertive in removing misleading adverts. The FCA also noted that it has removed or amended over 5,000 financial promotions from authorised firms between January and October 2022, compared to 564 in 2021.
  • The proposed gateway will be managed and supervised by the FCA, requiring Approved Firms to apply for an FCA permission for any variation and/or cancellation of their Financial Promotion Requirement (FPR). This regulatory action is distinct and detached from the FCA’s Part 4A permissions.
  • The proposed changes will impact the Financial Services and Markets Act of 2000 (FSMA) in a way in which the authorised firms (Approver Firms) are no longer permitted to approve the financial promotions of unauthorised firms unless those promotions have already been approved by the new proposed regulatory “gateway” supervised by the FCA.

What are the Main Elements?

  • Under the new proposed measures, the current rules which allow authorised firms to approve financial promotions on behalf of other firms who are not authorised will change.
  • Authorised firms who approve, or intend to approve, financial promotions for unauthorised firms are under the scope of the new proposed measures.
  • Authorised firms will be required to undergo new screening checks before they are allowed to approve financial promotions.
  • The new measures also provide further power and greater oversight to the FCA to stop potential harm from financial promotions before they materialise.
  • Firms will also be required to regularly report back to the FCA on financial promotions they have approved, helping the FCA crack down on rogue adverts.

Which entities does the Consultation Paper target?

  • Authorised persons communicating financial promotions.
  • Firms operating in the cryptoasset market.
  • Applicants and prospective applicants for authorisation who may wish to approve financial promotions for unauthorised persons.
  • Unauthorised persons that get their financial promotions approved by authorised persons.

Next Steps?

  • The FCA will accept feedback from relevant stakeholders on the proposals outlined in the consultation paper until 7 February 2023. Based on the feedback it receives, the FCA is expected to publish a Policy Statement with the final rules in the first half of 2023.
  • The FCA intends to use its current supervisory regulatory powers to ensure that the Approver Firm operates within the prescribed regulatory framework. Non-compliance could lead to fines, penalties, and other remedies as deemed appropriate and proportionate by the regulator.
  • Although the FCA proposals only affect authorised firms, unauthorised firms should consider the changes, as they may have an indirect impact on them. Approver Firms will be required to scrutinise financial promotions rigorously going forward. If an unauthorised firm’s current “Approver(s)” are refused authorisation by the FCA or decide not to apply for authorisation, then the unauthorised firm should consider how they will be able to continue to promote (e.g. replacement approver must be found or they would need to rely on FPO exemptions).

How Can Complyport Help?

If this article has raised any questions about the upcoming changes to the rules regarding financial promotions, or you think your firm may require assistance, please contact Complyport’s Head of Regulatory Business solutions, Jan Hagen via jan.hagen@complyport.co.uk to book a free consultation.

ComplyPortal – management and approval of financial promotions

Complyport supports the leading RegTech Software ComplyPortal, which is designed by compliance specialists to help Regulated firms simplify and digitise their Regulatory Compliance Management in an easy-to-use, cloud-based platform. ComplyPortal includes the management and approval of Financial promotions by utilising ComplyPortal’s approval module.

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.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

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.

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