FCA consults on regulatory gateway for approving financial promotions

The FCA has published a consultation paper (CP), CP22/27, “Introducing a gateway for firms who approve financial promotions”. The consultation period runs from 6 December 2022 to 7 February 2023.

Why is the FCA consulting?

The CP follows on from HM Treasury’s July 2020 consultation, ‘Regulatory Framework for the Approval of Financial Promotions'.

In its June 2021 response document following the consultation, HMT confirmed:

• that it would introduce a new regulatory gateway for anyone authorised under FSMA 2000 who wished to approve a financial promotion (finprom) on behalf of an unauthorised person and
• that there would be a transitional period so existing authorised persons could continue to approve finproms until their applications have been determined.

For a summary of HMT’s consultation response, see here.

On 20 July 2022, HMT introduced the Financial Services and Markets Bill in Parliament – among other things, this includes the necessary changes to FSMA 2000 to create the new regulatory gateway.

The CP sets out how the FCA plans to “operationalise the new gateway” so it is ready to be opened as soon as is reasonably possible once the legislation is made and relevant provisions commenced. This depends on the final legislation broadly reflecting the draft set out in the Bill. If this assumption turns out to be wrong, the FCA “shall reflect this in the way that we respond to this consultation”.

What is the FCA proposing?

Under current rules, a person can only communicate a finprom if:

• they are an authorised firm
• the content of the finprom has been approved by an authorised firm under s.21, FSMA 2000, or
• an exemption applies.

Where an authorised firm either communicates its own finprom or approves one under s21, FSMA 2000, that firm is responsible for ensuring the finprom complies with relevant FCA rules (which include the requirement that the promotion is clear, fair and not misleading).

However, the FCA notes that it has seen too many non compliant finproms approved and then communicated by unauthorised firms to retail consumers, which can lead to harm being done.

When the new regime comes into force, though, a firm that wants to be able to approve finproms will need (subject to some exceptions) to apply to the FCA for permission to do so.

The exceptions referred to above mean that an authorised firm would not have to apply to the gateway where it is only approving a finprom:

• of its own for onward communication by an unauthorised firm
• for an unauthorised business in its corporate group
• for its Appointed Representative, where the promotion relates to a regulated activity for which the principal has the relevant permissions and has agreed to accept responsibility.

The FCA does not expect its proposals to be generally relevant to authorised persons which fall within one of these exceptions.

The CP contains the FCA’s proposals for:

• how it will assess applicants at the gateway
• the basis on which it will grant or refuse applications
• a bi-annual reporting requirement for firms which have been given permission to approve financial promotions
• a requirement that, where a firm has been granted permission to approve financial promotions, it notifies the FCA within 7 days of when it approves, amends or withdraws approval of a finprom and
• consequential changes to its non-Handbook guidance for firms that approve finproms for investments.

Transitional regime

The CP also contains proposals for a transitional regime, as flagged in HMT’s consultation response. The final details, though, will depend on the contents of the legislation, when passed, reflecting HMT’s plans.

The transitional period would begin as soon as the initial application period has closed.

Firms that apply within the application period can continue to approve finproms for unauthorised firms while the application is being determined.

If the application is successful, the firm will face no interruption to its ability to approve financial promotions.

If, on the other hand, the application is unsuccessful in respect of a particular product type, the firm will need to stop approval activity immediately in relation to that product type once its application has been determined.

The FCA would have up to 12 months in which to determine applications for permission to approve finproms.

Existing authorised firms that do not apply to the gateway within the initial application period will be unable to approve financial promotions for unauthorised firms once the application period ends (unless an exemption applies).

If a firm receives confirmation that it has been granted Part 4A permission before the s21 gateway application period begins, it will need to apply to the gateway if it wishes to approve finproms.

Fee

On 29 November 2022, the FCA consulted on an application fee of £5,000, intended to contribute towards the cost of resourcing and operating the s21 gateway.

That consultation closes on 16 January 2023.

Next steps

The CP’s consultation period closes on 7 February 2023.

The FCA expects to publish its Policy Statement and final rules in H1 2023 – this, though, will depend on both the progress of the legislation and when the Bill receives Royal Assent.