New FCA rules on approving financial promotions

As from 7 February 2024, firms wishing to approve financial promotions on behalf of third parties will need to have received permission from the FCA to do so.  Existing firms which submitted an application between 6 November 2023 and 6 February 2024 which is not yet determined by 7 February 2024 may continue to approve financial promotions until the FCA's final decision.

For existing firms, the application should be made by way of a Variation of Permission and, for firms seeking authorisation for the first time, the application should be made as part of the Part 4A application. 

Firms will be able to apply for permission to approve all types of financial promotions or just promotions for certain types of products.  However, the FCA discourages applications for blanket permission.  The FCA may approve an application in full or on a more limited basis. 

Firms will need to show on a non-prescriptive, case-by-case basis that they have the necessary competence and expertise in respect of the relevant products for which they would be approving financial promotions.  The FCA's assessment process will be on a proportionate basis and, in respect of financial promotions potentially posing a great risk of harm, may include extensive due diligence and interviews with key individuals. 

There are also some exemptions to the requirement to apply for permission:

• where a firm approves financial promotions for a member of the same group. Firms should consider carefully whether entities for which they approve promotions fall within the definition of "group" for these purposes;
  
  
• where a firm approves financial promotions by a firm's appointed representative for the regulated activities for which the firm has accepted responsibility as principal; and
  
  
• financial promotions prepared by the firm itself for communication by an unauthorised person.

Firms which approve a financial promotion relating to non-mainstream pooled investments (such as units in unregulated funds), speculative illiquid securities and qualifying cryptoasset investments will need to notify the FCA of such approval within seven days.  This particular notification requirement does not apply to any other types of investment and therefore applies a narrower basis than the original proposal.

For all types of financial promotion, where a firm approves amendments to, or withdraws approval of, a financial promotion due to a "notifiable concern" (broadly that the financial promotion risks harm to consumers or a concern as to the integrity or propriety of the persons for whom the firm has approved a financial promotion) then this will also need to be notified to the FCA within seven days.

There are also half yearly reporting requirements applicable to all relevant firms which require detailed information on their financial promotion activity, including the total number of approvals, total number of customer complaints and revenue from financial promotion approval activity.

Firms which are currently approving financial promotions on behalf of third parties, or who wish to do so in the future, will therefore need to make an application to the FCA for permission.  They should consider carefully the types of products to be included in their application and whether they have the relevant competence and expertise to approve financial promotions in respect of those products.

The initial application period will run from 6 November 2023 to 6 February 2024.  The application forms are expected to be available once the application window opens but an indication of the questions that are likely to be asked can be found in Annex 1 and Annex 2 of the Policy Statement.    Further information can be found on the FCA's dedicated webpage. 

Affected firms will also need to consider what processes they need to put in place to comply with the notification and reporting requirements.

If you would like further information or assistance in understanding the new regime, please speak to your usual Travers Smith contact or any of the individuals below.