The Financial Conduct Authority (FCA) is implementing significant changes to its rules regarding financial promotions, impacting how authorised firms can communicate and approve such promotions. Effective from 7th February 2024, authorised persons (firms) will no longer have the authority to approve financial promotions for unauthorised firms without obtaining specific permission through a Variation of Permission (VOP) application.
New application process and exemptions
To gain approval for financial promotions, authorised firms must submit a VOP application through the FCA Connect portal. This application includes specifying product types for which approval is sought. Notably, the FCA sets a statutory deadline of 6 months for complete applications and 12 months for incomplete ones.
Exemptions to this rule include financial promotions prepared by appointed representatives, those within the same corporate group, and the firm's own promotions communicated by unauthorised persons. Firms must carefully consider these exemptions and tailor their applications accordingly.
Considerations before applying
Before submitting a VOP application, firms should consider several crucial factors:
- Knowledge & capability
Individuals involved in the approval process must be competent and understand the associated risks.
- Governance & oversight
The Board or governing body must ensure that the firm's controls align with FCA rules.
- Record keeping
Evidence of due diligence during the approval process and ongoing monitoring is essential.
- Remuneration arrangement
Remuneration cannot be linked to the number of promotions approved.
- Notification requirements
Firms must notify the FCA within 7 days of approving promotions related to crypto assets or speculative illiquid securities.
Firms will also be subject to reporting obligations, including biannual reporting to the FCA regarding complaints, volume of approvals, and revenue. These reporting measures aim to enhance transparency and oversight.
Changes in Financial Promotions order (FPO) exemptions
Additionally, firms relying on High Net Worth Individual (Article 48) and Self-Certified Sophisticated (Article 50A) investor exemptions under the FPO should be aware of recent changes. The criteria for these exemptions, particularly income and net asset thresholds, have been modified as of 31st January 2024.
For High Net Worth Individuals, the financial thresholds have increased, requiring an income of at least £170,000 or net assets of at least £430,000 throughout the last financial year.
The Self-Certified Sophisticated Investor exemption criteria have also changed, removing the criterion of multiple investments in an unlisted company and increasing the company turnover required for the 'company director' criterion to £1.6 million.
Transition period for existing engagements
Firms engaging with individuals based on the previous FPO exemptions before 31st January 2024 can continue these engagements without requesting updated investor statements. However, any new financial promotions made after this date must adhere to the updated exemptions.
It's crucial for firms to stay informed about these regulatory changes, ensuring compliance and adapting their practices to navigate the evolving landscape of financial promotions.
How can Newgate help?
We extend our expertise to assisting in the process of the VOP application as well as crafting bespoke Financial Promotions Policies tailored to your unique needs. Our financial promotion health check goes beyond the surface, encompassing a thorough review of your website to ensure full compliance with regulatory requirements. Trust us to bolster your compliance framework and help your firm thrive in a regulated environment.