Treasury is consulting on a fundamental change to the rights of authorised firms to approve financial promotions of unauthorised firms. Both it and FCA have become increasingly concerned that some firms are approving financial promotions in areas where they do not have the knowledge or competence to properly comply with their obligations under the applicable conduct of business rules. As a result, promotions often fail the “clear, fair and not misleading” test, which can lead to direct customer losses, and also indirect losses where customers are diverted away from more suitable products or lose trust in the system. FCA’s intervention action on the approval of financial promotions for mini-bonds to retail investors is a case in point.
But FCA cannot systematically check, or know, whether a firm is competent to approve financial promotions, so Treasury proposes a change to the law. It proposes 2 options, both of which will involve a change to s21 FSMA:
- the preferred option is that FCA imposes a blanket restriction on all firms on approving financial promotions. They would still be able to approve their own promotions for use by third parties, or the promotions of group companies, but otherwise would have to apply to FCA for a variation or cancellation of the restriction to allow them to approve promotions. That way, FCA would be able to check at application stage whether the firm would be able to comply with the relevant requirements; or
- the more draconian and, in Treasury’s view, probably disproportionate option wold be to make the approval of financial promotions a regulated activity.
Separately, Treasury is consulting on a specific regime for cryptoasset promotions. It wants to bring certain types of cryptoasset within the scope of regulation. The consultation starts from FCA’s taxonomy of cryptoassets, and the fact that exchange tokens and utility tokens are “unregulated cryptoassets”. The Government believes many such assets expose consumers to unacceptable levels of risk. It would do this by bringing in a new definition, for financial promotions purposes, of “qualifying cryptoasset” as a type of “controlled investment” – and this would include all cryptoassets not already caught under another definition which are both fungible and transferable. It would also introduce a set of “controlled activities” in relation to these assets (dealing, arranging, managing, advising and agreeing to carry on the activity). These would bring certain assets and activities that are not within the RAO within the scope of the financial promotion regime. The Government thinks that, broadly, the same FPO exemptions should apply to these assets/activities as to other controlled investments, and would add an exemption so that those wishing to pay with, or accept, these assets in exchange for goods and services would not need to comply with the financial promotion regime merely for stating their willingness to do this.
At this stage, Treasury has decided against bringing these assets within the scope of the RAO, but this is still being considered.
Treasury seeks views on both consultations by 25 October.