Firms approving Financial Promotions to pass through regulatory gateway?: HM Treasury consult on proposed reforms

HM Treasury have proposed a regulatory framework which would require authorised firms to obtain the FCA's consent before they can approve unauthorised firms' financial promotions. They have opened a consultation which closes on 25 October 2020. 

Currently, any FCA authorised firm is able to approve an unauthorised firm's financial promotion communication. The rationale for this is that authorised firms should have the necessary expertise to check that a financial promotion meets the FCA's minimum standards. 

However, the FCA has identified a number of cases where authorised firms have failed to satisfy the requisite requirements in approving  the financial promotions of unauthorised persons. For example, in relation to the much publicised mini-bond market. This includes: 

• failing to undertake adequate due diligence to ensure the promotion meets FCA requirements; and 
• approving financial promotions which relate to products beyond the sphere of expertise.

This puts consumers at risk of deficient or potentially harmful financial promotions. 

In response, HM Treasury have proposed a regulatory ‘gateway’ which an authorised firm must pass through before it is able to approve the financial promotions of unauthorised firms. Any firm who wants to approve unauthorised firms' financial promotions would first need to obtain the FCA's consent. 

HM Treasury have set out two alternative policy options to achieve this: 

• Option 1 – Restrict approval of financial promotions of unauthorised firms through the imposition of requirements by the FCA; or
• Option 2 – Specify the approval of financial promotions communicated by unauthorised persons as a ‘regulated activity’ under FSMA.

Regardless of which Option is chosen, amendments to s21 Financial Services and Market Act 2000 (and other sections) will be required.

In their consultation, HM Treasury are asking stakeholders: 

• whether they agree with a regulatory gateway to assess the suitability of a firm before it is permitted to approve the financial promotions of unauthorised persons; 
• what they consider are the risks and benefits of the two policy options; and
• which policy option would be their preference. 

You can respond to the consultation here.