Approving Financial Promotions

Alongside its recent temporary restriction on the marketing of speculative mini-bonds to ordinary retail clients (see our article on this), the FCA has published guidance for firms approving financial promotions for communication by unauthorised persons.

Firms which approve financial promotions are already required to ensure that those promotions comply with FCA rules, both in presentation and in substance. The recent guidance explains some practical implications of existing requirements, rather than setting out new standards. 

The ‘Dear CEO’ letter dated 9 January 2019 indicated the FCA’s interest in financial promotions, followed by their CEO letter dated 11 April 2019 stating that since the previous letter they had since “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 we expect.”  


What is a financial promotion?
The term ‘financial promotion’ is very widely defined and covers any inducement for the customer to take up the firm’s services, including the firm’s website and suitability reports.  It also covers any form of marketing and advertising activities, whether solicited or unsolicited. 

Clear, fair and not misleading(COBS 4.2.1 R)
All communications with customers must be clear, fair and not misleading.  This is embedded in the FCA principles, the detailed conduct of business rules, and also in the concept of Treating Customers Fairly (TCF). 

To be in a position to confirm this, you should consider both:

  • the presentation of the promotion (e.g., whether the risk warnings are given sufficient prominence);
  • the substance (e.g., the fairness and veracity of claims made and whether these can be substantiated) 

Firms should also be aware of the requirements set out regarding the content of promotions and ensure their promotions meet these standards and recording is in place to evidence this.

And remember that approvals should be reviewed as required to ensure that they remain clear fair and not misleading, for example because tax rates or returns have changed since initial approval.

Approving financial promotions for unauthorised persons
Before approving the content of any financial promotion intended for communication by an unauthorised person, firms should analyse, and carry out due diligence regarding, the substance of the promotion. The extent and substance of the analysis and diligence needed to be able confirm that a promotion is fair, clear and not misleading will vary from case-to-case and will depend on the form and content of the promotion. However, it would include:

  • undertaking checks on the unauthorised firm, its Directors and business history;
  • the commercial viability of what is being promoted;
  • whether any quoted returns are reasonably capable of being met;
  • whether any claimed tax advantages actually apply, i.e. does the promoted product meet the relevant tax rules.

Social media and digital communications
Many firms increasingly make use of social media and other forms of digital communication to promote their products and services. Firms approving financial promotions for communication through this type of channel should ensure they are familiar with the relevant FCA guidance.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

Whilst the recent guidance relates specifically to promotions for communication by unauthorised persons, this is a good time to review all your firm’s promotions, and approval processes to make sure they meet the requirements of the Regulator. Remember that firms must maintain a register of all approvals.

In particular, we note the notification requirement for firms that approve or have approved financial promotions for unauthorised persons.

Action Required By You

  • Review your financial promotions approval process and any currently approved promotions in light of the recent guidance;
  • Update and amend the process as required;
  • Note that the recent CEO letters indicate the FCA’s current focus in this area;
  • Firms that approve the financial promotions of unauthorised persons, or have done so in the 12 months to 26 November 2019, or intend to do so, must inform the FCA by emailing Section21Approval@fca.org.uk;
  • Contact your usual ATEB Consultant for further assistance or contact ATEB direct.
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About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

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