PS23/13: Introducing a gateway for firms who approve financial promotions

Following a corresponding consultation in 2022 (EventID 18831), the Financial Conduct Authority, FCA, has published its final policy statement (PS23/13) as regards its approach for the approval of firms that in turn approve financial promotions, including financial promotions on investments, and as regards of the notification and reporting requirements of FCA approved firms. Also, the policy statement sets out the final fees that firms will have to pay to apply for approval from the FCA as consulted on in consultation paper (CP22/23).
#### Background:
The Financial Services and Markets Act 2023 (FSMA 2023) introduces a new financial promotion gateway which requires authorized persons in UK to first get permission from the FCA or the Prudential Regulation Authority (PRA) when approving financial promotions of unauthorized firms. Furthermore, the Treasury has provided a timeline for implementing the new financial promotion approval gateway via the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023 (SI 2023/936 and has subsequently implemented the Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 (SI 2023/966) to define exemptions from the requirement to seek permission for approving financial promotions.
As far as the timeline is concerned, there’s an application period for firms wishing to obtain permission for this purpose. The application period will commence on November 6, 2023 and will close on February 6, 2023. On February 7, 2023, the new approval requirement will fully come into force which implies that firms which have not applied for approval will no longer be permitted to approve financial promotions thereafter. Authorized persons currently approving financial promotions will be permitted to continue their activities so long as they have applied with the FCA before February 7, 2023 and the FCA’s decision is still pending.
As far as the exemptions are concerned, authorized persons may approve financial promotions without the permission of the FCA where
– the communication is prepared by an authorized person and subsequently distributed by an unauthorized person;
– both parties are members of the same group; and
– the unauthorized person is an appointed representative (AR) of the authorized firm which is responsible for the regulated activities to which the promotion applies.
#### Proposed Requirements:
The FCA proposed to require firms seeking approval for financial promotions of investments to demonstrate several key capabilities, including the following, among others:
– the maintenance of adequate records of approved financial promotions and the recording of how these promotions comply with FCA regulations;
– the performance of assessments of the commercial viability of the promoted product or service;
– the verification that the service/product will be provided by the issuer as advertised;
– the maintenance of adequate systems, controls, and processes to ensure that approved promotions are fair, clear, and not misleading;
– the implementation and maintenance of policies and procedures for monitoring promotions, with the ability to withdraw approval or request amendments when necessary;
– the identification and mitigation of additional risks associated with approving financial promotions; and
– the firm has appropriate competence and expertise to approve and monitor financial promotions, with clear lines of responsibility.
When assessing applications, the FCA would consider various factors, including information provided in the application, systems and controls for validating information, monitoring procedures, the qualifications and experience of individuals involved, market research, complaints data, and the regulator’s experience with similar firms.
Furthermore, the FCA proposed to require approved financial promotion firms to generate a semi-annual reports to be submitted via the FCA’s RegData collection platform. The reports would include the following information for the preceding 6-month period:
1. Total number of approvals in the last period;
2. Total number of consumer complaints for approved promotions;
3. Revenue from the approval activity; and
4. Total revenue, regulated and unregulated, in the last period.
In addition, approved firms would have to submit timely notifications to the FCA
– each time they have approved a financial promotion;
– each time when they withdraw their approval of a promotion; and
– each time when there are „material“ changes to an approved promotion as outlined in the consultation.
Finally, the FCA proposed an application fee of £5,000 to be paid by firms when applying for approval.
#### Modifications to the draft proposal and near final rules
In view of the feedback received from respondents, which was – generally speaking – supportive of the proposed requirements, the FCA has made the below noted amendments to its draft. It may be noteworthy in this context, that most respondents raised concerns about the burden and the costs associated with the proposed notification and reporting requirements which is why the regulator has primarily made changes in these areas.
(1) Notifications are now required only in specific cases: The financial promotion approver must now submit a notification within 7 days when approving promotions for qualifying cryptoassets or products subject to a retail mass marketing ban (excluding mass market investments like speculative illiquid securities).
(2) Additional metrics added: Notifications must now include information about whether the approver’s client is an overseas person and its country of origin, as well as the Companies House registry number (or international equivalent) of the approver’s client. Approvers also need to attach the approved promotional material to the notification.
(3) Removal of the requirement for naming communicators: The requirement to include the names of individuals who communicate the financial promotion, if they are not the approver’s client, has been removed.
(4) Notification for material amendments or withdrawal: Notifications are now only required for material amendments or withdrawal of approval if they relate to „notifiable concerns“ which is further defined in the policy statement.
(5) Bi-annual reporting requirement: The FCA has included two new data items that must be reported (as quoted):
– type of products being promoted, and
– the ’marketing restriction’ category that applies to the promoted products (if any).
Furthermore, the FCA has introduced a new rule that requires the regulator itself to review the imposed new requirements within 24 months following the implementation of the final rules.
All other requirements and obligations, including the application fee, will be implemented as proposed.