HM Treasury has launched a consultation on possible changes to the rules on authorised firms approving financial promotions made by unauthorised persons. The FCA has identified recent failures by authorised firms to satisfy regulatory requirements when approving financial promotions, and the Treasury has reached the conclusion that stronger safeguards are required to ensure consumers are protected from “deficient or potentially harmful” financial promotions.
Under the current regime, the Financial Services and Markets Act 2000 (FSMA) prohibits making financial promotions unless that communication is made by an authorised person, falls within an exemption, or the communication is approved by an authorised person. The consultation paper notes with concern that this general ability for all authorised persons to approve financial promotions may allow firms to approve communications on which they have not undertaken proper diligence, or which relate to products or services in which they have little experience.
HM Treasury believes a specific regulatory ‘gateway’ should be created for firms to pass through before they can approve financial promotions of unauthorised persons. Two potential reforms have been proposed – either:
- a blanket restriction on authorised firms approving financial promotions, with each firm then applying to the FCA for permission to approve promotions;
- or the inclusion of “approving financial promotions” as a ‘regulated activity’ under FSMA. Neither option is intended to include an authorised firm’s own communications or that of their group, but the latter would present a significant change, fundamentally altering the regulatory status of financial promotions. In their consultation, HM Treasury lends its support to the first, lighter-touch gateway.
Regardless, HM Treasury believes that either option would enhance the FCA’s oversight, supervision, prevention and intervention powers, in turn ensuring that approver firms have relevant expertise and adequate diligence processes to ensure approved promotions are of sufficient quality. The results of the consultation will be of keen interest both to authorised persons providing approval services, and also to unauthorised persons relying on such services to enable the distribution of their financial promotions.
The consultation closes at 12pm on 25 October 2020.
In order to strengthen the FCA’s ability to ensure the approval of financial promotions operates effectively, the government proposes to establish a regulatory ‘gateway’, which a firm must pass through before it is able to approve the financial promotions of unauthorised firms.