UK regulator outlines new rules for approving financial promotions
Published on 17th Oct 2023
The FCA has set out what to expect when the financial promotions "gateway" for approvers is introduced early next year
The UK Financial Conduct Authority (FCA) issued a policy statement on 12 September 2023 setting out the regulatory framework that will require certain approvers of financial promotions to obtain its permission to do so in future, with the new regulatory gateway going live from 7 February 2024.
What is the extent of this new regime, who it will apply to, and what are the key points for firms to consider prior to its implementation?
Why a new regime?
The key change under the new regime is that all FCA authorised persons who approve, or intend to approve, financial promotions for unauthorised persons will need to apply to the FCA for permission to do so, unless an exemption applies.
Per the exemptions, authorised persons will only be able to approve financial promotions without this permission where they approve:
- their own financial promotions for communication by authorised persons;
- the financial promotions of their appointed representatives in respect of the regulated activities that they have accepted responsibility for; or
- the financial promotions of unauthorised persons within their corporate group.
Under the current financial promotions regime, any authorised person can generally approve financial promotions for unauthorised persons. The FCA has identified this as a problematic. They have found that many authorised persons have been approving financial promotions that they are not sufficiently qualified to comment on.
The result has been a significant increase in the number of approved financial promotions being amended or withdrawn (up 1398% from 2021). The FCA contends that consumers are viewing financial promotions that are inappropriate for their risk appetite and that this has led to consumers investing in high-risk products that do not match their risk tolerance.
What can firms expect?
When deciding whether or not to permit an authorised person to approve financial promotions, the FCA's main consideration is whether the approval furthers their operational objectives.
The FCA's other considerations will include whether applicants have adequate systems, controls and processes in place; if there are persons with sufficient competence and expertise within the firm to approve the financial promotions in question, and has the firm sufficient resources in place to process the volume of financial promotions anticipated.
Persons with permission to approve financial promotions will have to submit information on all approvals to the FCA on a six-monthly basis. The FCA has set out the details that will be required as part of this reporting in its policy statement. Firms will also be required to notify the FCA of any "high risk" financial promotions within seven days of approving such a promotion.
The standards expected of approving firms remain largely the same as under the current regime. The FCA has drawn particular attention to the need for compliance with its new Consumer Duty. Part of this will involve considering the potential harm to consumers from promotions of certain products and mediums of communication.
The FCA intends for authorised persons to be able to submit applications for permission from 6 November 2023. The initial application window will close on 6 February 2024, and the new regime will come into force on 7 February. Only those firms that have applied for permission to approve financial promotions during this initial application window, or who have been approved by the FCA already, will be able to continue approving from 7 February 2024 onwards without breaching the new requirements. Firms that miss this window will have to cease all approving activities until they apply and obtain FCA permission.
Osborne Clarke comment
Authorised persons who regularly approve financial promotions should consider whether they must obtain permission to do so. If none of the exemptions apply, firms should make their applications within the initial application window to ensure that they are able to continue providing this service once the new regime comes into force in February next year. Firms should also take a look through the policy statement to see the information that they will be required to provide in their application and ensure that their processes are sufficient for approval.
The new regime will also impact unauthorised persons who regularly rely on authorised persons to approve their financial promotions. It is likely that approvers will pass the increased costs of complying with the new regime onto their clients.
Christy McGuigan, a Trainee with Osborne Clarke, contributed to this Insight.