On 11 April 2019, the FCA published a Dear CEO letter reminding firms involved in the approval of financial promotions for unauthorised persons of their obligations when doing so. The Dear CEO letter follows a Dear CEO letter published earlier this year to all regulated firms reminding them of their responsibilities relating to the use of financial promotions.
In the Dear CEO letter the FCA reminds all firms engaged in approving financial promotions of retail investments how seriously it treats the issue.
The FCA is issuing its latest Dear CEO letter as despite the earlier Dear CEO letter it has identified a number of examples where it appears the due diligence carried out on a financial promotion may have fallen well short of the standard the regulator expects.
The FCA reminds firms that even when investment products are not regulated or are issued by companies that are not-FCA-authorised, should a firm provide a ‘s21 approval’ of the promotion, the firm can expect the FCA to require it to demonstrate that it has carried out such due diligence to ensure that the promotion is fair, clear and not misleading.
The FCA also reminds firms that direct offer financial promotion of mini-bonds and other unlisted securities to retail clients is generally restricted to high net worth investors, sophisticated investors or “restricted investors” (who have certified that they are not investing more than 10% of their net assets in non-readily realisable securities). The FCA further reminds firms that it is the responsibility of the firm that communicates or approves the direct offer financial promotion to ensure that this restriction and the rules on appropriateness of the investment are complied with.
The FCA also reminds firms of their obligations under COBS 4.10.2R(1), 4.10.2R(2), 4.10.1G, 4.5.2R(2) and 4.5A.3EU.
In the final part of the Dear CEO letter the FCA warns that it has a range of measures which it can take where it observes non-compliance with its requirements. Such measures include amending or removing the financial promotion. Where the FCA identifies concerns with the due diligence performed, firms can expect the regulator to examine what governance and oversight failures may have contributed to this and to assess who is responsible.