How to make sure your FP approvals meet FCA standards

Shield 2

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

As a regulated Marketer, you need a deep understanding of the rules that govern financial promotions. You need to work closely with your Compliance team to make sure your content is on-point and your marketing materials have all been through a compliant sign-off process.

Here we look at the FCA’s concerns around approvals and what you can do to make sure you don’t fall short of their expectations.

What was the FCA letter about?

The regulator had already sent one letter to CEOs in January this year flagging issues around financial promotions approvals. You can read the details of this in one of our previous blogs.

So, what’s the issue? The main problem for the regulator is potential confusion around ‘regulated’ and ‘unregulated’ activity. Some firms are regulated by the FCA only for certain activities – but issue promotions implying that all their activity is regulated.

The fact that some firms were doing this was brought into sharp focus with the collapse of mini-bond firm London Capital & Finance in January this year.

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 are the financial promotions issues here?

A recent Money Marketing article highlights two key issues the LCF collapse brought into focus:

  • 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. The FCA warned LCF that it was giving ‘undue prominence’ to the fact that it was regulated by the Authority. In contrast, its disclosures – which showed that its mini-bonds were neither regulated nor protected under the Financial Services Compensation Scheme – were not so prominent.

What did the FCA remind CEOs about?

In his letter last month, Andrew Bailey reminded 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 letter reminded 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 approving 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 financial promotion is approved for communication by an unauthorised person, an authorised firm needs to confirm that it complies with the FCA’s financial promotion rules. This can be particularly relevant if you outsource any of your sales and marketing activity. Read up here on the FCA’s rules on outsourcing
  • 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 makes it clear that it will take action via ‘a range of measures’ if it spots promotions that haven’t followed the correct approvals process, or which break the rules.

These measures can include forcing firms to amend or remove promotions, as well as limiting the firm’s activities or bringing civil or criminal proceedings.

Stay in the FCA’s good books

If you want to stay on the right side of the regulator (and who doesn’t?!), this is a good prompt to revisit your own financial promotions and the process for approving them.

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

  • Do they follow the necessary approvals process, to ensure that all FPs are signed off by an authorised person? Read our ‘6 ways to make your approvals process better’ for tips on making your process quicker, simpler and more robust.
  • Do you apply this best practice to all your promotions, including your website and social media?

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 to put you 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.