The new FCA financial promotions rules introduce a gateway for firms who approve financial promotions. Regulated firms are already obligated to comply with the COBS 4 Handbook rules on financial promotions and client communications. However, PS23/13 introduces new standards and requirements for those seeking to approve financial promotions for communication by unauthorised persons.
What are Financial Promotions
A financial promotion is a communication that contains an invitation or inducement to engage in a financial product or service. Firms regulated by the FCA must ensure that their financial promotions comply with COBS 4 (and/or sector specific equivalent Handbook modules). All financial promotional materials and content must be clear, fair, and not misleading. The aim of the promotion should be to provide the consumer with balanced information to enable them to make an informed decision.
As financial promotions can be communicated in different mediums and formats, the rules around them are detailed. What works on a letter to an existing client may not work for potential consumers via social media. Careful consideration needs to be given when designing, reviewing and approving promotional content.
Acts & Orders Governing Financial Promotions
The policy statements and FCA handbook rules have been developed to meet the regulations and legislation published by the Government. The Financial Services and Markets Act 2000 (as amended by the Financial Services and Markets Act 2023) and the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended by the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) (No. 2) Order 2023) contain the rules for developing, communicating and monitoring financial promotions.
Why Are There New Rules?
Under the existing FSMA and FCA rules, regulated firms can approve financial promotions for communication by themselves and other persons/firms. However, to review the content and suitability of approved promotions, the Treasury launched its Regulatory Framework for Approval of Financial Promotions Consultation in July 2020. The review assessed the existing measures being used to ensure financial promotions are approved by an authorised firm.
The outcomes from the review indicated that historically there were too many non-compliant promotions being approved. These promotions were then being communicated by unauthorised persons to consumers. This resulted in consumer harm, increased risk and promoting financial products and services that were unsuitable for some consumers.
New FCA Financial Promotions Rules
On the 7th February 2024, the FCA’s new rules and requirements for approvers of financial promotions come into force. Authorised firms who wish to approve financial promotions for communication by unauthorised persons have until the 6th February to apply for ‘Approver Permission’.
The application and approval process aims to bridge the gaps identifed in the Treasury’s review. Firms seeking financial promotion approver permission will need to demonstrate more than just their own compliance with the FCA rules. They will need to evidence that they have the skills, knowledge, resources and expertise to approve financial promotions for use by unauthorised firms and persons.
The implementation of additional safeguards through the introduction of a new regulatory gateway sees amendments/additions to sections 21 and 55NA of the FSMA. These set out how an individual or firm can lawfully communicate a financial promotion. A promotion can be communicated to consumers where: –
- The content of the promotion is designed, approved and sent out by an authorised firm/person.
- The content of the financial promotion has been approved by an authorised firm/person who has approver permission from the FCA.
- An exemption applies.
Approving Financial Promotions
Firms who apply for approver permission must have adequate systems and controls in place to approve a financial promotion for communication by an unauthorised person. This includes ensuring the content is clear, fair and not misleading and ensuring that the promotion remains compliant for the lifetime of its communication.
COBS 4.10 sets out the new requirements when approving financial promotions. The approver is responsible for ensuring that they have the appropriate competence and expertise to approve financial promotions. This includes carrying out due diligence on the unauthorised person(s) and their products and services.
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