Updated: Jan 29
The Treasury has announced that it will be reviewing the process by which FCA authorised firms sign off financial promotions for third parties.
If you raise money for, or otherwise approve financial promotions of, companies outside of your own group, you may well be impacted by these proposals.
The current sign off process
The process, commonly referred to as a section 21 sign off, is used to approve marketing material for distribution. We often see it at play when corporate finance houses or even law firms sign off a promotion for a business raising capital. By choosing this sign-off route, rather than using an exemption to the financial promotions regime, the business being marketed must meet the FCA's standards within their promotion and in exchange their material can be distributed to the widest available audience.
Why the change?
The proposals seem to spring from the London Capital & Finance debacle which has put the FCA’s supervisory work somewhat in the spotlight. The FCA has expressed concerns to Treasury about their ability to ensure that firms are appropriately approving third-party promotions and the consultation outlines the issue the FCA claims it is facing.
What is proposed?
Currently all authorised firms are able to approve the promotions of third parties. To change this, two proposals are on the table. Either would serve to limit the number of firms who can sign off third party promotions, with the aim of making the FCA’s supervision in this area more effective.
Option 1: Enable the FCA to restrict who can make financial promotions.
This change would mean that firms would have to seek specific consent to make financial promotions. We expect that this consent could either be publicly viewable, a little like the consent to hold client money, which is listed on the scope of permission or kept behind the scenes, such as the permission that AIFMs need to seek in order to market certain funds.
Option 2: Make signing off of financial promotions a regulated activity.
This would mean that firms approving third-party promotions would need to seek the additional Part 4A permission from the FCA. This would likely occur at authorisation or through a later variation of permission.
The consultation highlights the government preference for the first option, which is felt to be more proportionate as it requires less legislative change. If you wish to share your views, on what makes most sense for your firm or industry you have until midday 25 October 2020 to reply.
We’ll be developing our thinking over the coming weeks but from an initial reading we can’t help but feel this is a case of using a sledgehammer to crack a nut and that this will simply encourage more unauthorised financial promotions.
Also, economic impact will certainly be a feature in decision-making one would think, given that access to finance is likely to be particularly important to UK business in the coming years.
You can access the Treasury's proposals here: https://www.gov.uk/government/consultations/regulatory-framework-for-approval-of-financial-promotions
For more of our thoughts as this develops, keep an eye on our resources page: www.adempi.co.uk/resources