UK: New FCA Gateway for Firms Who Approve Financial Promotions

On 6 December 2022 the FCA published the consultation paper “Introducing a gateway for firms who approve financial promotions”. The consultation sets out how the FCA plans to operate a new gateway which would require firms wanting to continue approving financial promotions for unauthorised persons to apply for permission.

Who is the consultation aimed at?

The consultation is aimed at s21 Financial Service and Markets Act 2020 (FSMA) “approvers”; firms which are responsible for approving financial promotions of unauthorised companies by ensuring they comply with FCA financial promotion rules. The aim of proposal is to introduce a new permission-based gateway envisioned by the Treasury to better protect consumers from potentially misleading promotions for services like high-risk investments, crypto assets and Buy-Now-Pay later services.

Why is the consultation relevant?

It is clear from the consultation document that the development of new types of financial services in recent years has been a contributing factor to the increase of non-compliant and harmful adverts that the FCA has seen, approved by unauthorised firms.

Currently under s21 of FSMA authorised firms are responsible for ensuring financial promotions follow FCA rules, these include the requirement that promotions are clear fair and not misleading and either (i) promoted from an authorised firm; (ii) approved by an authorised firm; or (iii) it benefits from an exemption.

New proposals could also lead to new ongoing reporting requirements for approved firms. These new requirements are anticipated to be costly to firms, however they would enable the FCA to be more proactive around harmful promotions and also enable them to target areas of higher risk for more effective regulatory management.

The FCA are consulting on the following:

  • how it assesses applicants at the gateway;
  • the basis for the FCA granting or refusal of applications;
  • a bi-annual reporting requirement for firms that are given permission to approve financial promotions;
  • a requirement that firms that are granted permission to approve financial promotions must notify the FCA when they approve, or amend or withdraw approval of, a financial promotion, within 7 days of doing so;
  • not extending the compulsory jurisdiction of the Financial Ombudsman Service to the approval of financial promotions; and
  • further consequential changes made to the FCA’s non-Handbook guidance for firms that approve financial promotions for investments, and additional text on the Consumer Duty.

Once the new legislation comes in to force firms who don’t obtain permission will not be permitted to approve financial promotions.

Changes to the s21 regime will be introduced to the Financial Services and Markets Bill (the Bill). The Bill amends FSMA and includes an amendment to create the new regulatory gateway for s21 approvers. The FCA would like to set up the gateway as soon as the legislation is made, although there is still some way to go for the Bill before it receives Royal Assent.

Immediate implications for firms

It is likely that from the Treasury’s initial recommendations that there could be a transition period when the legislation comes into force, this would limit any administrative disruption to enable authorised firms to continue approving promotions until their applications for approval from the FCA are determined.

Consumer duty

The consultation document also has regard to the new Consumer Duty rules introduced to the FCAs principles earlier this year, more can be found on it in our previous update.

According to the consultation, firms will need to be aware of their responsibilities under the Consumer Duty’s general obligations, the consumer understanding outcome and overarching cross-cutting rules such as avoiding causing foreseeable harm, to enable consumers to pursue their financial objectives and to act in good faith.

The FCA have recognised that the application provisions are not clear when a firm is only approving or communicating a financial promotion, where there is no underlying regulated activity. As a result the FCA have published a consultation on 2 December 2022 which is proposing amendments to the application of the Consumer Duty.

Next steps

This consultation is open until 7 February 2023. The FCA will publish a Policy Statement and final rules in the first half of 2023.

The Financial Services Regulatory team are following closely the developments of the consultation as well as the Financial Services and Markets Bill and developments of the Consumer Duty.

 

Co-authors:
Gavin Punia, Financial Regulatory Partner, London, [email protected]
Melissa Daley, Knowledge Manager, London, [email protected]

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