The U.K. Financial Conduct Authority has published its final Policy Statement and Rules on financial promotions of high-risk investments and firms approving financial promotions. Many of these changes address or build upon recommendations of the Gloster Report or are otherwise related to the fallout from the London Capital & Finance plc scandal. The rules on risk warnings for financial promotions of high-risk investments will apply from December 1, 2022, and all other rules will apply from February 1, 2023. The FCA's related guidance (which is included in Annex 2 of the Policy Statement) will also apply from February 2023.
The FCA is making some changes to the rules on which it consulted. We highlight some of these changes in the summary of the new rules here.
Changes to Rules for High-Risk Investments
The FCA is proceeding to organize the applicability of its conduct of business rules by reference to three kinds of investments:
The intention is to include qualifying crypto-assets; however, the FCA will wait for legislation to be laid to bring these within the Financial Promotion regime before it changes its rules.
HM Treasury has separately announced that it plans to bring in legislation to close the apparent lacuna in financial regulation and the prospectus regime for non-transferable securities (which make up much of the third category listed above). In a consumer context, it is now in any event questionable whether such products are lawful or represent an extant grouping, following the finding that non-transfer clauses which characterise such securities are unenforceable under the Consumer Rights Act 2015, in a piece of LCF related litigation, R (Donegan) v Financial Services Compensation Scheme Limited [2021] EWHC 760 (Admin). In the meantime, these FCA rules tighten further the restrictions on such products.
Strengthening Rules to Enhance Consumer Protection
The financial promotion rules for Restricted Mass Market Investments and Non-Mass Market Investments are being changed, including:
Enhancing the Rules Applicable to Authorized Firms Approving the Financial Promotions of Unauthorized Firms
HM Treasury is implementing the regulatory gateway for the approval of financial promotions of unauthorized firms as part of the Financial Services and Markets Bill. This will mean that authorized firms will be banned from approving financial promotions of unregulated firms and will need to apply to have the prohibition removed in whole or part before they are able to approve financial promotions of unauthorized firms.
The FCA is also amending its rules on the approval of financial promotions of unauthorized firms by authorized firms, including, among other things, to require:
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