Out-Law News | 28 Jul 2020 | 10:42 am | 2 min. read
The UK government wants to establish a regulatory ‘gateway’ through which an authorised financial firm must pass before it is able to approve the financial promotions of unauthorised firms. Any firm wishing to approve the financial promotions of unauthorised firms would first need to obtain the consent of the Financial Conduct Authority (FCA).
The proposal is designed to change the current rules, which allow any authorised firm to approve any financial promotion of an unauthorised firm, without needing to be assessed as suitable or competent. Promotions include advertising in traditional or social media, marketing brochures, or direct mail.
In its consultation (27 page / 285KB PDF) the Treasury said establishing a gateway would improve the FCA’s oversight and supervision as well as the quality of financial promotions. The gateway would either be established through imposing requirements by the FCA, or by specifying that the approval of financial promotions communicated by unauthorised firms is a ‘regulated activity’ under the Financial Services and Markets Act 2000 (FSMA).
Clearly we already have the concepts of complex and non-complex products and we also have non-mainstream pooled investments and soon, systemically illiquid securities. It would not be surprising if the FCA used these terms in its consent process.
Financial services regulation expert Elizabeth Budd of Pinsent Masons, the law firm behind Out-Law, said the consultation followed recent action by the FCA to ban the sale of ‘mini bonds’ and the mass-marketing of speculative illiquid securities to retail investors.
“It illustrates the concern that because any authorised firm can approve any financial promotion for an unauthorised person, the authorised firm may either not undertake proper due diligence and verification when approving a financial promotion for a third party, or may not have the necessary expertise to understand the investment and its associated risks,” Budd said.
“The two options proposed – the FCA consent gateway or a new regulated activity of approving financial promotions – are discussed at high level and it appears that the consent option is the preferred option,” Budd said.
“What is not clear is how the FCA will assess that a firm should be granted consent and how investments are to be categorised. Clearly we already have the concepts of complex and non-complex products and we also have non-mainstream pooled investments and soon, systemically illiquid securities. It would not be surprising if the FCA used these terms in its consent process,” Budd said.
Budd said the proposals in the latest consultation left a gap in the approval process, as the new regime would not apply to an authorised firm that approves a financial promotion on behalf of a company in its own group.
Separately, the Treasury is also consulting on proposals (27 page / 246KB PDF) to bring the promotion of certain types of cryptoassets within the scope of financial promotions regulation. The measure is intended to enhance consumer protection, while continuing to promote responsible innovation.
Some people that purchase cryptoassets are still unclear of the regulatory protection afforded to their ‘investment’. This consultation should ensure a degree of oversight for the promotion of cryptoassets and help buyers to be better informed.
The government is proposing to add certain unregulated cryptoassets to the list of ‘controlled investments’ outlined in the FSMA. The proposed definition includes only cryptoassets that are both fungible – or interchangeable with another asset – and transferable.
Financial services regulation expert Andrew Barber of Pinsent Masons welcomed the proposals.
“Some people that purchase cryptoassets are still unclear of the regulatory protection afforded to their ‘investment’. This consultation should ensure a degree of oversight for the promotion of cryptoassets and help buyers to be better informed,” Barber said.
“Industry participants genuinely interested in developing cryptoasset markets should welcome this consultation as it will help to mitigate some of the bad press which parts of the market have received. It should also help ensure that unclear or unfair claims made by some promoters about their products are no longer permitted,” Barber said.
Barber said the two consultations focusing on financial promotions should help improve consumers’ confidence in cryptoassets.
“Further consultations regarding extending the regulatory perimeter to currently unregulated cryptoassets would also help to improve consumer confidence in cryptoassets and allow the UK to lead in the development of regulations for this new category of financial products,” Barber said.
Both consultations close on 26 October 2020.
30 Jun 2020
25 Jan 2019