Out-Law News 2 min. read
20 Sep 2023, 11:04 am
Firms authorised by the UK’s Financial Conduct Authority (FCA) that want to continue to approve financial promotions for unauthorised persons will shortly have to apply to the regulator for permission to do so and meet the new ongoing reporting requirements.
Firms approving financial marketing for unauthorised firms will soon have to demonstrate that they have the necessary skills and expertise to approve promotions under the new gateway regime. Under the new rules (PDF/1.2MB), which come into force on 7 February 2024, firms will need to hold an FCA permission to sign off financial promotions.
Previously, any firm authorised by the FCA could approve promotions on behalf of unauthorised firms. The changes are driven by FCA and UK government concerns that financial promotions were being approved that did not sufficiently protect consumers in this area. The FCA said the new gateway will enable consumers to make informed investment decisions.
Firms that intend to continue approving financial promotions for unauthorised firms will need to apply to the FCA between 6 November 2023 and 6 February 2024 for permission to do so. Existing authorised persons that apply for permission during this transitional period will be able to continue approving financial promotions for unauthorised persons while the FCA determines their application. On 7 February, the new legislation will come fully into force and firms that have not applied to the gateway will no longer be able to approve financial promotions for unauthorised persons,subject to exemptions) and unless they are successful in an application to do so via a Variation of Permission application to the FCA.
The FCA states that a firm’s application should cover information such as the types of promotion it intends to approve, its expertise to approve those promotions, and the policies, systems and controls it has in place to ensure the promotions are clear, fair and not misleading. Firms will also be required to demonstrate how they will monitor the financial promotions approved on an ongoing basis and how they will withdraw approval from unauthorised persons when required.
Financial services expert at Pinsent Masons Hannah Ross said firms need to be aware of their ongoing responsibilities under the new rules. Approvers will be required to report regularly on the financial promotions they have approved and what they cancel approval for.
“The new gateway will require ongoing dialogue between approving firms and the regulator about what firms are approving and cancelling. Once firms have stepped through the new gateway, approving firms will need continually demonstrate that their financial promotions comply with FCA rules” said Ross. “Firms should expect robust FCA action where the regulator identifies an approved financial promotion that breaches FCA requirements – including requesting the promotion be changed or withdrawn; directing the firm to withdraw the approval; varying or cancelling the firm’s permission and instigating enforcement investigation and action.”
Under the new regime, an approver will be required to file regular notifications to the FCA and all approvers will be subject to bi-annual reporting requirements. These half-yearly report will contain information such as total number of approvals, total number of consumer complaints for approved promotions, total revenues from such approval activity.
“The new gateway rules seek to redress the imbalance in knowledge about financial services between firms and consumers, particularly considering the new consumer duty and the wider context of increased online harms and the growing popularity of crypto. The changes should ensure that firms’ conduct around financial promotions improves and is better scrutinised, especially when the products are complex, such as in the case of cryptoassets. Through tougher safeguards and fair, clear and not misleading financial promotions, consumers will be more empowered and better informed, whilst also being more well protected from harm” said Ross.
In a separate announcement relating to financial promotions, the FCA has set its expectations ahead of the tough new rules for cryptoasset marketing by providing examples of good and poor practice on firms’ preparations to comply with the new rules.
Underpinned by the Consumer Duty, other recent efforts by the FCA to boost consumer protection in financial services include its recent move to strengthen financial promotion rules for cryptoasset marketing and high-risk investments, and its proposals to revamp social media guidance for promoting financial products and services online, and its ongoing action in removing misleading financial promotions.