Shearman & Sterling LLP | FinReg | UK Proposals to Tighten Financial Promotion Rules By Unauthorized Firms
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  • UK Proposals to Tighten Financial Promotion Rules By Unauthorized Firms

    HM Treasury has released proposals to amend the U.K.’s financial promotion rules to provide increased consumer protection from misleading advertisements and a lack of suitable information. The U.K. financial promotion rules provide that a person may not communicate a financial promotion—an invitation or inducement to engage in an investment activity—unless the communication is exempt, the firm is authorized to carry on a regulated activity or the communication is approved by an authorized firm. Only financial promotions that are not real-time may be approved by an authorized person, and any approval must comply with the Financial Conduct Authority’s financial promotion rules. Any communication must be fair, clear and not misleading.

    The Government is proposing to amend the financial promotion rules for promotions by unauthorized firms which are approved by authorized firms.  Responses can be submitted until October 25, 2020. It has been identified that the current regime can lead to consumers losing money, re-direct investors away from more appropriate products and result in loss of consumer confidence. These situations may arise because the firms approving financial promotions don’t have the relevant expertise for the product or service being promoted and the authorized firm doesn’t conduct the appropriate due diligence. In HM Treasury’s view, this results in a reduced ability for the FCA to appropriately regulate all financial promotions.

    The Government is therefore proposing to limit the ability to approve financial promotions of unauthorized firms to authorized firms that obtain the specific consent of the FCA to do so. Consent would not be required for the approval of promotions of unauthorized entities within the same group of an authorized firm or to the approval by an authorized firm of its own financial promotions. The intention of the proposal is to provide the FCA with the information it needs to supervise these financial promotions, giving the regulator the ability to assess a firm’s suitability and competence to approve financial promotions as well as remove its consent for a firm to do so. It is also envisaged that the FCA’s consent could be tailored to limit the types of products for which a firm could provide approval.

    The Government is also seeking feedback on whether to implement the changes through FCA rules or by making “approval of financial promotions” a regulated activity in the Regulated Activities Order. It proposes adopting the former option.

    The Government is separately consulting on proposals to bring unregulated crypto-assets within scope of the financial promotions regime.

    View the consultation paper on restricting the financial promotion rules by unauthorized firms.

    View details of the Government’s consultation on unregulated crypto-assets.

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