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FCA Releases Policy Statement on Financial Promotion of High-Risk Investments

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The Financial Conduct Authority (FCA) has published policy statement 22/10, “Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions,” as part of the agency’s Consumer Investments Strategy. The policy statement sets out final rules following a consultation period earlier this year and addresses consumer protection, market integrity, and competition issues.

Financial promotion rules are a top priority for regulators globally. 4,226 promotions have been amended or withdrawn in the year to the end of July 2022 following FCA intervention alone. The finalized rules aim to enhance consumer protection by preventing and reducing harm from investments that do not match consumers’ risk appetite. 

Changes to the financial promotions rules

The FCA has confirmed that it will implement the following changes, among others, to the financial promotions rules:

  • Introduce the categories of Restricted Mass Market Investments (RMMI) and Non-Mass Market Investments (NMMI) for financial promotions
  • Introduce stronger risk warnings for all RMMIs and NMMIs
  • Ban inducements to invest (e.g., “refer a friend” bonuses) for RMMIs and NMMIs
  • Introduce a 24-hour cooling-off period for first-time investors in RMMIs and NMMIs
  • Introduce record-keeping requirements for firms to monitor the outcome of the consumer journey for RMMIs and NMMIs

Additionally, some “targeted changes” to the rules stipulated in the January consultation have been applied in response to the feedback received. These changes include:

  • Making investments issued by local authorities exempt from the FCA’s marketing restrictions
  • Allowing risk warnings to vary from prescribed summaries, providing a rationale is recorded for any deviations
  • Exempting “shareholder benefits” from the ban on incentives to invest

Cryptoasset promotions

Firms should note that the new rules do not apply to cryptoasset promotions – yet. While cryptoasset promotions are currently outside of the FCA’s remit, in January 2022, the Treasury confirmed its intention to legislate to bring certain digital assets into the scope of the financial promotion regime. The agency has stated it will publish its final rules for such promotions once the relevant legislation has been made. 

In the meantime, guidance has been issued by the FCA warning the public of the risks that come with investing in crypto. The agency has also urged consumers to consider whether investing in high-return investments based on cryptoassets is appropriate.

Key takeaways

The rules related to the FCA’s main risk warnings for financial promotions of high-risk investments will take effect from December 1, 2022. All other rules come into force from February 1 2023. Firms must comply with these rules from the applicable dates. Ahead of these deadlines, firms should familiarize themselves with the detailed guidance provided by the FCA. 

Compliance teams may also wish to review the approach to promotion being taken by other leading global regulators – such as MAS in Singapore – to understand how the FCA’s approach compares to that of other leading global regulators. 

 

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The Financial Conduct Authority (FCA) has published policy statement 22/10, “Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions,” as part of the agency’s Consumer Investments Strategy. The policy statement sets out final rules following a consultation period earlier this year and addresses consumer protection, market integrity, and competition issues. Financial promotion rules are a top priority for regulators globally. 4,226 promotions have been amended or withdrawn in the year to the end of July 2022 following FCA intervention alone. The finalized rules aim to enhance consumer protection by preventing and reducing harm from investments that do not match consumers’ risk appetite. 

Changes to the financial promotions rules

The FCA has confirmed that it will implement the following changes, among others, to the financial promotions rules:
  • Introduce the categories of Restricted Mass Market Investments (RMMI) and Non-Mass Market Investments (NMMI) for financial promotions
  • Introduce stronger risk warnings for all RMMIs and NMMIs
  • Ban inducements to invest (e.g., “refer a friend” bonuses) for RMMIs and NMMIs
  • Introduce a 24-hour cooling-off period for first-time investors in RMMIs and NMMIs
  • Introduce record-keeping requirements for firms to monitor the outcome of the consumer journey for RMMIs and NMMIs
Additionally, some “targeted changes” to the rules stipulated in the January consultation have been applied in response to the feedback received. These changes include:
  • Making investments issued by local authorities exempt from the FCA’s marketing restrictions
  • Allowing risk warnings to vary from prescribed summaries, providing a rationale is recorded for any deviations
  • Exempting “shareholder benefits” from the ban on incentives to invest

Cryptoasset promotions

Firms should note that the new rules do not apply to cryptoasset promotions - yet. While cryptoasset promotions are currently outside of the FCA’s remit, in January 2022, the Treasury confirmed its intention to legislate to bring certain digital assets into the scope of the financial promotion regime. The agency has stated it will publish its final rules for such promotions once the relevant legislation has been made.  In the meantime, guidance has been issued by the FCA warning the public of the risks that come with investing in crypto. The agency has also urged consumers to consider whether investing in high-return investments based on cryptoassets is appropriate.

Key takeaways

The rules related to the FCA’s main risk warnings for financial promotions of high-risk investments will take effect from December 1, 2022. All other rules come into force from February 1 2023. Firms must comply with these rules from the applicable dates. Ahead of these deadlines, firms should familiarize themselves with the detailed guidance provided by the FCA.  Compliance teams may also wish to review the approach to promotion being taken by other leading global regulators - such as MAS in Singapore - to understand how the FCA’s approach compares to that of other leading global regulators.    [cta_card title="A Spotlight on Financial Crime" cta_img="" category="" bodytext="Stay on top of regional trends and novel criminal techniques so you can protect your business from financial crime." cta_text="Download now" cta_url="https://complyadvantage.com/insights/the-state-of-financial-crime-2022/"]

Originally published August 12, 2022, updated August 12, 2022

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