In December 2022, the Financial Conduct Authority (“FCA”) carried out a consultation on the introduction of a new regulatory gateway for firms who approve financial promotions. On 12 September 2023, the FCA published Policy Statement (PS23/13) which sets out the FCA’s final policy positions including how the Financial Services and Markets Act 2000 (“FSMA”) will be amended to introduce the new gateway. The changes seek to protect consumers and are largely in response to the increase in cases where non-compliant financial promotions have been approved by authorised firms. Assessing authorised firms will enable the FCA to consider their expertise and competence to approve financial promotions for unauthorised persons. 

In the policy statement, the FCA notes that consumers have ever-increasing exposure to financial promotions via digital services and are often targeted with financial adverts which are unclear, unfair or misleading, and do not fit their risk appetite. The changes aim to ensure that consumers get the information they need to make informed decisions. The FCA expects the new framework to produce a higher degree of compliance with its financial promotions’ rules, leading to a generally raised standard for these promotions. 

Current position 

Section 21 of FSMA regulates financial promotions in the UK and provides that a person can lawfully communicate a financial promotion in the UK if:

1. they are an FCA or Prudential Regulation Authority authorised person (an “authorised person”); 
2. an authorised person has approved the content of the financial promotion; or 
3. an exemption applies.

However, there have been an increasing number of cases where non-compliant financial promotions have been approved, leading to significant harm to consumers. The FCA notes in the Policy Statement (PS23/13) that in 2022 8,582 promotions by authorised persons were amended or withdrawn by the FCA (a 1,398% increase compared to 573 in 2021). 

New position 

Under the new rules, authorised persons will need to use the new gateway to apply to the FCA for permission to authorise financial promotions for unauthorised persons. 

Applicant firms will be required to answer a series of questions which address: (i) the types of investments the firm wants permission to  approve; (ii) how the firm has updated its policies and procedures to approve financial promotions; (iii) a summary of the firm’s experience; and (iv) how the firm will ensure financial promotions are clear, fair and not misleading. 

Firms will also need to be aware of their ongoing reporting requirements (including bi-annual reporting on total number of approvals, number of consumer complaints for approved promotions and revenue generated from s21 approval activity). Additionally, firms will be required to notify the FCA if they approve a financial promotion of a product subject to a mass-marketing ban or a qualifying cryptoasset, or if they approve amendments to, or withdraw approval of, a financial promotion due to a ‘notifiable concern’. 

However, there are a number of exemptions from the permission requirement including the following:  

1. financial promotions prepared by unauthorised persons within the same corporate group as the authorised person; 
2. financial promotions prepared by the authorised person’s appointed representatives, where the promotion relates to a regulated activity for which the authorised person has agreed to accept responsibility; or 
3. the authorised person’s own financial promotions that will be communicated by unauthorised persons. 

Timing 

Firms can submit applications to apply for permission to approve financial promotions from 6 November 2023 until 6 February 2024. During this period, firms can continue to authorise financial promotions for unauthorised persons whilst their applications are being considered. The new law will come into force on 7 February 2024 and firms which have not yet applied for the gateway will no longer be able to approve financial promotions for unauthorised persons.