On 22 June 2021, HM Treasury published the response to its July 2020 consultation on a regulatory framework for approval of financial promotions.
In the earlier consultation HM Treasury proposed that the Financial Services and Markets Act 2000 (FSMA) should be amended so that authorised firms are no longer able to approve the financial promotions of unauthorised persons, unless the authorised firm had passed through a new regulatory ‘gateway’ operated by the FCA. In terms of the gateway HM Treasury set out two possible options being: (i) restrict approval of the financial promotions of unauthorised firms through the imposition of requirements by the FCA; and (ii) specify the approval of financial promotions communicated by unauthorised persons as a ‘regulated activity’ under FSMA. HM Treasury’s preferred option was the first option on the basis that it would achieve the intended outcome of strengthening the FCA’s ability to ensure that authorised firms comply with FCA rules when approving the financial promotions of unauthorised persons, without fundamentally altering the overall regulatory architecture of the financial promotion regime.
In its response HM Treasury is proceeding with its preferred option for the gateway and sets out the proposed structure that includes a transitional period.
The proposed structure of the gateway includes:
- All new and existing authorised firms will be prohibited from approving the financial promotions of unauthorised persons. This will be implemented through the imposition of a requirement on their permission – the Financial Promotion Requirement.
- Both new and existing authorised firms that wish to approve financial promotions will have to apply to the FCA to have the prohibition removed either entirely (allowing them to approve all types of financial promotions), or partially (allowing them to approve certain types of financial promotions). Firms will do this using a variation of requirement application to the FCA. The FCA will determine, and accept or refuse, such an application under powers in Part 4A FSMA. The FCA will be able to refuse an application if this is deemed necessary in order to advance its operational objectives.
- Permissions to approve financial promotions could be limited to a specific type or types of products or services dependent on the firm’s expertise. The proposed gateway is not intended to require the FCA to grant permission on a promotion by promotion basis.
- Firms will be able to apply to the FCA at any point for their requirements to be varied further (either to increase the scope of their permission to approve financial promotions, or to reduce it).
- There will be a transitional period with three distinct phases: (i) before the transitional period commences, there will be an application window in which firms that wish to continue to approve financial promotions in the new regime will apply to do so; (ii) once the transitional period has begun firms that have applied to the FCA to be able to approve financial promotions by the end of the application window will be able to continue approving financial promotions during the transitional period until such time as their application is decided; and (iii) at the end of the transitional period, the new regime will commence and only those firms that have successfully applied to have the Financial Promotion Requirement cancelled or varied will be able to approve financial promotions.
In terms of next steps:
- The Government intends to bring forward legislation when parliamentary time allows.
- The FCA will consult on its proposals for implementing the gateway in due course.