There are several provisions being introduced by the Financial Services and Markets Act 2023 (FSMA 2023) which are of great interest to those firms and individuals in the financial services sector.
Our blog focuses on those new provisions brought in by section 20 of FSMA 2023 in relation to financial promotions.
Section 20 FMSA 2023 changes the current regime surrounding the restrictions on financial promotions, building on those measures brought in by the Financial Services and Markets Act 2000 (FMSA 2000) by enhancing the restrictions on the ability of unauthorised firms to communicate financial promotions to consumers.
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:
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 effect of these new provisions is that authorised firms will now need to obtain permission from the FCA to approve financial promotions.
It is anticipated that obtaining this permission from the FCA will be a challenging process given the high standard that the FCA are likely to hold firms to when approving financial promotions.
Given the issues with the previous regime outlined above, the FCA is likely to place specific emphasis on the following:
These new provisions will come into full force on 7 February 2024.
However, from 6 November 2023, the FCA is now accepting applications for permission to approve financial promotions made between 6 November 2023 and 6 February 2024.
The new requirement for permission from the FCA in respect of approving financial promotions will not apply in the following situations: