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The Financial Conduct Authority (FCA) recently launched a consultation on Introducing a gateway for firms who approve financial promotions (CP22/27) to tackle harms caused by non-compliant promotions being communicated to retail consumers by unauthorised firms. The FCA’s consultation proposes measures to strengthen controls and set higher standards for the approval of financial promotions. It follows on from HM Treasury’s consultation on a Regulatory Framework for the Approval of Financial Promotions (launched in July 2020) and the HMT consultation response (published in June 2021).

What is a financial promotion?

A financial promotion, as defined in the FCA Handbook, is “an invitation or inducement to engage in investment activity” that is “communicated in the course of business”. Section 21 of the Financial Services and Markets Act 2000 (‘Restriction on financial promotion’) sets out that a person cannot communicate a financial promotion unless:

a)       They are an authorised person; or

b)      The content of the communication has been approved for the purposes of section 21 by an authorised person.

What is the section 21 gateway?

Under the proposals set out in CP22/27, a new ‘Financial Promotion Requirement’ (FPR) will be imposed on all authorised firms, restricting them from being able to approve financial promotions until they have obtained approver permission from the FCA. Firms will need to demonstrate that they have adequate systems, controls and processes in place in respect of approval of financial promotions.

As part of the new gateway, authorised firms will need to submit regular reports to the FCA on the details of financial promotions the firm has approved, as well as details of any withdrawn approvals or where there have been material amendments to previously approved materials. In addition, firms will need to report on total approvals, consumer complaints for approved promotions, and revenue in relation to section 21 approvals within the reporting period.

What are the next steps?

The FCA’s consultation on the gateway closed on 7th February 2023, with a policy statement and final rules expected in the first half of 2023. Implementation of the gateway is contingent on the Financial Services and Markets Bill, introduced by the Treasury in July 2022, being passed into law.

The consultation on the section 21 gateway also follows on from the FCA’s policy statement on strengthening the financial promotion rules for high-risk investments (PS22/10) with new rules coming into force from 1st December 2022 and 1st February 2023 – more information on the policy statement is available on ShareIn’s blog. The FCA also made improvements to the Appointed Representatives regime in 2022 under PS22/11, and introduced a major shift in financial services in requiring firms to deliver good outcomes to retail customers with the new Consumer Duty.

As an authorised Principal firm, ShareIn welcomes the FCA’s recent measures to address harms it has identified in the market, and we encourage the regulator to take a proportionate approach with this latest consultation on the proposed regulatory gateway for financial promotions.

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