Background
Section 21 of the Financial Services and Markets Act 2000 ("FSMA") introduced the Financial Promotion restriction. This being that person must not communicate an investment or invitation to engage in investment activity unless the Financial Promotion is:
- Made by a person authorised under FSMA;
- Approved by an Authorised Person under FSMA; or
- Exempt from the Financial Promotion restriction.
As a result and as permitted by the rules, many non-Authorised Persons have been relying on an Authorised Person to review and approve their Financial Promotions. However, the FCA (in conjunction with His Majesty's Treasury ("HMT")) have set out that they have seen too many non‑compliant Financial Promotions resulting in harm to consumers, following approval of the Financial Promotion by Authorised Persons, which are then subsequently communicated (incorrectly) by an unauthorised person.
In response to this problem, amendments to the Financial Services and Markets Act 2000 have been made to impose the new ‘Financial Promotion Requirement’ (in section 55NA of FSMA) on all existing and newly Authorised Persons, restricting them from approving Financial Promotions unless they have express permission to do so, obtained via the FCA's Regulatory Gateway. This new regulatory gateway will come into effect from 7 February 2024.
Changes being implemented
For existing Authorised Persons (or firms) who wish to continue approving Financial Promotions for unauthorised persons, they must now apply to the FCA for permission to do so by 6 February 2024.
Firms that have not applied to the Gateway by this date will no longer be able to approve Financial Promotions for unauthorised persons. It is important to note these changes will not affect authorised persons that only approve their own Financial Promotions for communication by an unauthorised person, the Financial Promotions of their Appointed Representatives (ARs) relating to the regulated activities they have accepted responsibility for, or the Financial Promotions of unauthorised persons within their corporate group.
Firms that have applied for permission may continue to approve Financial Promotions during the 'transitional period'. The transitional period being the time between each firm applying for the permission and receiving the FCA's determination of the application. From 7 February 2024, all part 4A authorised firms will see their Financial Services Register page updated to reflect their ability to approve Financial Promotions.
Any Financial Promotions approved during the transitional period will remain valid regardless of the outcome of the application, though if the application is unsuccessful they will have to cease approval activity. The rules about the intervening period between requesting and hopefully receiving approval via the gateway are more nuanced and we recommend that firms look carefully review FCA's SUP sourcebook to understand their own position, or indeed seek a view for Regulatory Consultants such as DWF.
New notification and reporting requirements
As part of the new changes, the FCA will be introducing new notification and reporting requirements.
A notification report will need to be submitted within seven days to the FCA when approving a Financial Promotion for a qualifying crypto asset, or a product subject to a retail mass marketing ban.
Firms will also need to submit a notification within seven days when approving amendments to a Financial Promotion due to a notifiable concern or withdrawing approval due to a notifiable concern. A notifiable concern is a concern that an element of an approved Financial Promotion risks causing harm to consumers or relating to the integrity or propriety of an unauthorised person or persons for whom a firm has approved a Financial Promotion.
Approved firms will also be subject to new bi-annual reporting and will be required to provide the following information for the relevant reporting period:
- The total number of Financial Promotions approved;
- The number of Financial Promotions relating to each investment types approved;
- The number of Financial Promotions approved relating to restricted mass market investments and non-mass market investments;
- The number of complaints received relating to the firm’s approval of Financial Promotions;
- The total revenue (expressed in sterling) generated by the firm’s activity of approving Financial Promotions;
