On 19 January 2022, the FCA published Consultation Paper 22/2: Strengthening our financial promotion rules for high risk investments, including cryptoassets (CP22/2). The proposals in CP22/2 build on the questions the FCA asked in Discussion Paper 21/1 (DP21/1) on how it could strengthen the financial promotions rules.
The proposals in CP22/2 are a key part of the FCA’s Consumer Investment Strategy. The Strategy sets out the FCA’s 3‑year plan to address harm in the consumer investment market. The FCA is publishing CP22/2 to ensure that its financial promotion regime remains fit for purpose in light of the changing investment environment with promotions distributed to a mass audience at increasing speed via online platforms and through social media. The proposals also complement work by HM Treasury to improve the financial promotions regime. This work includes the proposed new regulatory gateway (s21 gateway) for authorised firms who approve the financial promotions of unauthorised firms (s21 approvers), extending the regime to promotions of qualifying cryptoassets and consulting on reforms to the exemptions for high net worth and sophisticated investors.
In CP22/2 the FCA proposes to make changes in the following areas:
- Classification of high‑risk investments (Chapter 3). Firms have told the regulator that its existing marketing restrictions are difficult to navigate and to understand what restrictions apply. The FCA therefore intends to rationalise the rules in COBS 4 under the terms ‘Restricted Mass Market Investments’ and ‘Non‑Mass Market Investments.’ To fully consider the issues raised by respondents to DP21/1 the FCA does not propose to extend the application of its Speculative Illiquid Securities rules in the consultation. It will revisit this issue later in the year.
- The consumer journey into high‑risk investments (Chapter 4). The FCA is concerned that too many consumers are just ‘clicking through’ and accessing high‑risk investments without understanding the risks involved. The FCA’s existing marketing restrictions are intended to ensure consumers only access high‑risk investments knowingly. However, consumer research has shown the FCA that this approach isn’t working as well as it should. The FCA proposes a package of measures to strengthen it by making changes to the following areas: strengthening risk warnings, banning inducements to invest, introducing positive frictions, improving client categorisation and stronger appropriateness tests.
- Strengthen the role of firms approving and communicating financial promotions (Chapter 5). The FCA wants to strengthen the role of a s21 approver as they play an important role in enabling unauthorised issuers of high‑risk investments to reach consumers. The regulator wants to develop a robust regime to complement the proposed s21 gateway which, when implemented, will hold s21 approvers to high standards. This will ensure approving firms have the relevant expertise in the promotions they approve and the overall quality of financial promotions in the market is high.
- Applying the financial promotion rules to qualifying cryptoassets (Chapter 6). HM Treasury has confirmed it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets. The FCA is consulting on how it will categorise these cryptoassets once they are brought into the financial promotion regime. It intends to generally apply the same rules to cryptoassets as currently apply to Non‑Readily Realisable Securities and Peer‑to‑Peer agreements (collectively this category will be referred to as ‘Restricted Mass Market Investments’). However, the regulator does not propose that it should be possible for ‘Direct Offer’ Financial Promotions of qualifying cryptoassets to be made to self‑certified sophisticated investors. Financial promotions relating to cryptoassets will need to comply with the FCA’s existing financial promotion rules in COBS 4, including the requirements for the promotion to be clear, fair and not misleading. They will also need to comply with the changes proposed in Chapter 4.
The deadline for comments on CP22/2 is 23 March 2022.
The FCA will consider all feedback and, depending on the responses, publish a Policy Statement and final Handbook rules in summer 2022.
The FCA proposes to give firms 3 months from publishing final rules to comply with the new requirements for the consumer journey outlined in Chapter 4 and the new requirements for s21 approvers outlined in Chapter 5. For requirements relating to cryptoasset promotions outlined in Chapter 6, the FCA proposes that any changes apply from the date qualifying cryptoassets are brought within the financial promotion regime.