How to ensure your FP approvals meet FCA standards

Doc WorkflowOn 11 April, the Financial Conduct Authority issued a stern letter to CEOs about repeated failings in financial promotions approvals.

It follows an initial letter sent to CEOs in January this year flagging similar issues, which we covered in an earlier blog.

The crux of the issue is the potential confusion around ‘regulated’ and ‘unregulated’ activity, with some firms regulated by the FCA for certain activities issuing promotions that could suggest all their activity is regulated, when this isn’t the case.

This practice was brought into sharp focus with the collapse of mini-bond firm London Capital & Finance. Issuing mini-bonds is not a regulated activity; it doesn’t require FCA authorisation. However, promoting the product did require regulatory authorisation – something LCF did not follow the rules on.

As a result, the FCA told LCF to take down its marketing, leading to the firm’s default, leaving 11,500 investors with combined losses of over £237m.

 What financial promotions issues have been brought into focus?

A recent Money Marketing article highlights two key issues raised by the LCF collapse:

  • There is a loophole in the Regulated Activities Order, which lets a regulated business conduct unregulated activities, such as selling mini-bonds, while describing the firm as a whole as ‘FCA-approved’.

Doing this – blurring the lines between regulated and unregulated activity – goes against the FCA’s rule that all investment promotions must be ‘clear, fair and transparent’.

  • Issues around prominence. In a warning to LCF, the FCA raised concerns that the firm gave ‘undue prominence’ to the fact that it was regulated by the Authority, in comparison to its disclosures noting that its mini-bonds were neither regulated nor protected under the Financial Services Compensation Scheme.

What is the FCA reminding CEOs about?

In his letter earlier this month, Andrew Bailey reminds firms that:

‘…before they approve a financial promotion for communication by an unauthorised person, they must confirm that it complies with our rules on financial promotions. This includes ensuring that the financial promotions which they approve are fair, clear and not misleading.’

The reminder has been sent because despite its earlier letter, the regulator has identified a number of examples where financial promotions ‘due diligence’ (i.e. review and approvals) ‘may have fallen well short of the standard we expect’.

The letter reminds CEOs that:

  • Even if the investment products are not regulated or are issued by firms that aren’t FCA-authorised, if an FCA-authorised firm is providing S21 approval of the promotion, it needs to meet the FCA standards. 

This means making sure that it is clear, fair and not misleading, in line with the regulator’s requirements – something that can be a particular challenge when promoting complex retail investments. 

  • Before a firm approves a financial promotion for communication by an unauthorised person, an authorised firm needs to confirm that it complies with the FCA’s financial promotion rules.
  • A firm must withdraw its approval if at any point it becomes aware that the promotion no longer complies with FCA rules.
  • A firm that communicates or approves an FP must have adequate systems and controls or policies and procedures in place to ensure regulatory compliance.
  • A regulated firm must ensure that the information presented is accurate and always give a ‘fair and prominent indication’ of any relevant risks when referring to any potential benefits.

The Authority also points out that it will take action via ‘a range of measures’ at its disposal if it identifies any non-compliance. These measures can include forcing firms to amend or remove promotions as well as limiting the firm’s activities and bringing civil or criminal proceedings 

Stay on the right side of the FCA

The latest letter from the regulator may be a good prompt to revisit your own financial promotions.

Could any of your FPs imply that your non-regulated activity is FCA-regulated? And do they meet the regulator’s other requirements?

  • Do they comply with the guidance on fair treatment?
  • Do they meet guidelines on suitability? – particularly important if you are communicating with vulnerable consumers
  • Do they include the right disclaimers and disclosures?
  • Have you given prominence to all essential information?
  • Do they follow the necessary approvals process, to ensure that all FPs are signed off by an authorised person
  • Do you apply this best practice to all your promotions, including your website and social media?

Download a free financial promotions compliance guide

To help firms meet their obligations around compliance for marketing materials, we have published the Compliance Guide to Financial Promotions.

It will help you ensure you are on the right track, by exploring: 

  • What constitutes a financial promotion?
  • Why are financial promotions so heavily regulated?
  • What is a ‘real time’ or ‘non-real time’ FP and how do they differ?
  • Is social media a viable medium for regulated firms?
  • Policy standards
  • Training and competency requirements
  • Management information
  • Record retention
  • Specialist areas

The guide is free, and you can download a copy here.

Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.

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