Financial Promotions Under the Financial Services and Markets Act 2023

Financial promotions (as defined by FSMA 2000 as “an invitation or inducement to engage in investment activity, communicated by a person in the course of business”) can only be communicated if the communication is made by an authorised firm or with the approval of an authorised firm, or where an exemption otherwise applies.  

Assuming another exemption does not apply and given the challenging process of becoming an authorised firm, the easiest and most typical route for an unauthorised firm to take to legally communicate a financial promotion is by obtaining approval from an authorised firm.  

Currently, where an authorised firm approves a financial promotion under s21 FSMA 2000, that firm is responsible for ensuring that the financial promotion is compliant with all of the Financial Conduct Authority (FCA) rules which are applicable (such as ensuring that the promotion is clear, fair and not misleading).

This regime has caused some key concerns for the FCA, including:

1. that there was a lack of specific expertise within the authorised firms for approving relevant promotions, especially in the sectors and areas in which firms were approving certain financial promotions (which may not be within their particular sectors or area of expertise);
2. that there was not sufficient due diligence being undertaken by authorised firms when evaluating whether to approve certain financial promotions. In particular, it is unclear how firms were ensuring that all of the FCA rules were being satisfied; and
3. that there was a general lack of oversight on the part of the FCA as they were not a part of this process of approval.

Therefore, the FCA is seeking to ensure that the regime has sufficient safeguards to ensure that approval by an authorised person is an appropriate and effective way of protecting consumers from financial promotions that do not satisfy the FCA rules and are potentially damaging to consumers.  

The new requirement for permission from the FCA in respect of approving financial promotions will not apply in the following situations:

1. where the authorised firm approving the communication is also the same firm that prepared the content of the communication. Therefore, an authorised firm can approve its own promotions, which are subsequently communicated by an unauthorised firm.
2. where an unauthorised firm prepares the content of the communication and is in the same corporate group as the authorised firm that approves the communication.
3. where an authorised firm accepts responsibility in relation to any regulated activity and appoints a representative that is an unauthorised firm, and the principal approves the communication which is prepared by the unauthorised firm.