Treasury responds on Fin Proms

Treasury has published its response following its consultation on a regulatory regime for the approval of financial promotions. It had been concerned about:

• lack of expertise in approver firms;
• lack of due diligence by approvers; and
• how to exercise proper regulatory oversight.

It proposed that FCA create a new regulatory gateway through which authorised firms would have to pass before they would be allowed to approve promotions. It asked whether this should be achieved by:

• amending s21 FSMA to provide that only firms that had been given consent by FCA could give approvals, and imposing a requirement on all authorised firms that they could not approve promotions unless they successfully applied to FCA to have the requirement varied or cancelled; or
• making the approval of financial promotions a new regulated activity.

Most respondents supported the idea of a gateway, and there was a slight preference for the first option.

Those who did not approve cited reasons such as the administrative burdens on firms, and an excessive reduction in approver firms leading to market disruption.

The Government has decided to press ahead with Option 1, so that all firms will have a requirement imposed on them that they cannot approve promotions, which they will have to apply to have varied. The permission to approve promotions could then be limited to specific products or services. There will be a transitional period, involving first an application window, during which firms can apply for the relevant variation or cancellation of the requirement and continue approving promotions.  Once the window closes, only firms that have applied can continue to approve promotions while FCA considers their applications. At the end of the transitional period when FCA has considered the applications, only those whose applications have been successful may approve promotions in line with their variation or cancellation.

Treasury will amend s21(2)(b) FSMA to accommodate this and make the appropriate changes to allow for the variation/cancellation application.

There will be a few exemptions, including for firms approving promotions for group companies. The Government has also decided to exempt firms approving promotions for their own ARs.

The Government will bring forward legislation “when parliamentary time allows” and FCA will consult on its proposals for implementing the gateway “in due course”.