The New Financial Promotions Approval Gateway: What it means for you

The FCA recently published a Policy Statement setting out the workings of the financial promotions approval gateway. The effect of this gateway is that existing authorised firms who wish to continue to approve financial promotions for unauthorised firms have a 3-month window starting from 6 November 2023 to apply for approver permission. Firms that do not apply during this window will need to stop approving financial promotions for unauthorised persons from 7 February 2024 onwards (unless an exemption applies).

The FCA will be updating its Financial Services Register from 7 February 2024 to show firms’ ability to approve financial promotions for unauthorised persons.

Why is the FCA is acting?

The FCA has long had some concerns about the section 21 FSMA approver regime. These include concerns related to firms approving financial promotions for products unrelated to their areas of expertise; poor quality of some approved financial promotions, particularly in relation to high-risk investments; and due diligence.

The Financial Services and Markets Act 2023 (see our briefing here) amends section 21 FSMA to introduce a regulatory gateway for all authorised persons wishing to approve financial promotions for unauthorised persons. Once the gateway comes into effect, all authorised persons wishing to approve financial promotions will need to apply to the FCA permission to do so (subject to certain exemptions). These exemptions are set out in the Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 (SI 2023/966) an apply where a financial promotion: is prepared by an appointed representative and relates to a regulated activity for which the authorised person has agreed to accept responsibility; is prepared by unauthorised persons within the same corporate group; and a firm's own (for communications by unauthorised persons).

The FCA published its Policy Statement (PS23/13) on operationalising the financial promotions gatewaying in September 2023 in response to its December 2022 consultation paper (CP22/27) (see our briefing here).

What is the timeline for the implementation of the gateway?

The Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023 (SI 2023/936) set out the implementation schedule for the gateway. Authorised persons that approve/intend to approve financial promotions for unauthorised firms should note proposed timeline for implementation of the rules and start process of preparing applications for permissions to approve financial promotions.

• 6 November 2023 - 6 February 2024 inclusive (application window). All authorised firms can continue to approve promotions. Firms submit applications for approval permission.
• 7 February 2024. Firms that have not applied for permission to approve during the application window will be subject to the new Financial Promotions Requirement and will be unable to approve financial promotions (except for in the circumstances outlined in the exemptions). Firms will not benefit from a transitional period if they submit a variation of permission. From this date, firms will need to submit notifications FCA where necessary under the new regime. This is also the date from which approvals will count towards a firm's first bi-annual report submission. 

What happens during these stages?

During the application window, existing authorised persons will be able to apply for approver permission by completing a variation of permission form via the FCA Connect portal. A transitional period begins for authorised firms that have submitted an application, under which they can continue to approve promotions while the FCA determines their application. The so-called transitional period will end on a firm-to-firm basis when a firm's application has been determined. The statutory deadline for the FCA to determine applications is 6 months for a complete application and 12 months for an incomplete application. 

A financial promotion approved by a firm during the transitional period will remain valid after the FCA determines its application for approver permission, even where the FCA refuses permission or the application granted does not cover the product. Continuing obligations of the firm for the approved promotion (such as ongoing monitoring) are still applicable, even where the firm is no longer entitled to approve the relevant financial promotion (e.g. because the FCA refuses its application). The FCA confirms that this also applies to firms not applying for section 21 approval permission that have approved financial promotions in the past that are still being communicated. In this case, the firm in question would need to withdraw approval where it became aware that the financial promotion was no longer in compliance with the financial promotion rules. 

Applicants applying for authorisation from 6 November 2023 will be able to apply for permission to approve financial promotions at the same time as applying for a Part 4 permission, with the new application for authorisation including an option to apply for permission to approve financial promotions. Firms that have submitted an authorisation application may add an application for permission to approve promotions via their FCA Case Officer. 

From 7 February 2024, firms that have not applied for permission to approve during the application period will be subject to the new FPR and will be unable to approve financial promotions, other than in the circumstances outlined in the exemptions. Those wishing to approve financial promotions in the future, will need to apply for permission to approve using a VOP form in the normal manner, but will not benefit from a transitional period.

What should firms be doing?

Firms wishing to apply permission should have been preparing the information needed as part of an application for approver permission. Annex 1 and Annex 2 of Policy Statement PS23/13 includes a list of questions that applicants will need to answer on the application form. Applicants should also refer to updated non-Handbook guidance contained in PS23/13, as well as CP22/27 and the FCA's webpage on the new regime. Applicants will be expected to provide information on: the promotions they expect to approve and the expected revenue to be generated from approving promotions; and applicable marketing restrictions. Firms will also need to detail relevant expertise for approving the type of promotions subject to the application. The FCA will be looking at the professional qualifications or work experience of any relevant individuals. Firms will be expected to have appropriate policies to ensure the promotions they intend to approve are clear, fair and not misleading, as well as to withdraw approval when necessary. The FCA will be seeking evidence of an ability to monitor the financial promotions approved on an ongoing basis. 

Are there any notification requirements?

A notification report will need to be submitted within seven days to the FCA when approving a promotion for a qualifying cryptoasset, or a product subject to a retail mass marketing ban (e.g. speculative illiquid securities). The FCA will require the notification whether or not the financial promotion is intended to be communicated to retail clients.  The notification report will include (among other things): whether the approver's client is an overseas person (and if so, which country), and (ii) Companies House number (or international equivalent) of the approver's client. Approvers will also need to attach promotional material they have approved to the notification via an upload to the report.

The FCA will also require a submission of a notification when a firm approves amendments to, or withdraws an approval of, a promotion due to a "notifiable concern". A notifiable concern relates to an element of an approved financial promotion that could cause harm to consumers/concern in relation to integrity or propriety of the unauthorised person. The FCA revised this proposal from CP 22/27 where it had proposed to require notification for the approval of every material amendment to a financial promotion or withdrawal of approval of a promotion. Firms are also advised to consider if FCA notification may be advisable (e.g. under Principle 11) even when not mandatory e.g. where a firm has refused to approve a financial promotions due to concerns about the legitimacy of the underlying product.

Firms will be required to submit bi-annual notifications using the FCA's Regdata collection platform covering: total number of approvals; total number of consumer complaints for approved promotions (to be broken down by type of products being promoted and "marketing restriction" categories that may apply to the promoted products); revenue from section 21 approval activity (this refers to revenue received as a result of the fee charged for approving a promotion, and not revenue generated from sales of the product being promoted); and total revenue, regulated and unregulated. 

For firms that apply during the application period, the FCA is proposing that the first biannual report to be submitted within 30 business days following whichever of the following dates falls first after the beginning of the transitional period: a firm’s Accounting Reference date (ARD); or the date falling 6 months after the firm’s ARD.
Firms will also be required to provide FCA notification if they plan to begin or cease approving financial promotions for products subject to marketing restrictions (using a SUP 15 notification form). 

How does this fit in with other initiatives?

The gateway proposals sit alongside FCA measures in FCA Policy Statement PS22/10 (see our briefing here), which set out requirements for how high-risk investments can be marketed, as well as provisions to strengthen the role of section 21 approvers. As of 8 October 2023, the new the financial promotions regime for marketing cryptoassets has also been in effect (see our briefings here and here for further details). Under this regime, marketing of qualifying cryptoassets will only be permitted where: the promotion is communicated by an authorised person; the promotion is approved by an unauthorised person; the promotion is communicated by (on or behalf of) a cryptoasset business registered with the FCA under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 but which is not an authorised person; the promotion otherwise complies with the conditions of an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO).

HM Treasury has also consulted proposed revisions to the financial promotion exemptions for high-net worth individuals, sophisticated investors, and self-certified sophisticated investors set out in the FPO (see our briefing here).

The FCA considers that the new Financial Promotions regime will cut across other FCA initiatives such as the Consumer Duty (see our briefing here for a background). Firms will be expected to consider their Consumer Duty obligations when approving the promotions for unauthorised persons, especially the consumer understanding outcome and the FCA suggests that this can be achieved by: ensuring that financial promotions meet the information needs of customers; financial promotions being likely to be understood by customers intended to receive them; and ensuring that the financial promotion is tailored to the characteristics of the intended recipients (including any characteristics of vulnerability, the complexity, the communication channel used). Firms are also expected to consider the potential harm to consumers "from promotions of certain products and mediums of communications". 

The FCA also states that firms approving financial promotions will also need to ensure that promotions comply with the clear fair and not misleading requirements in relation to sustainability related claims if the general "anti-greenwashing" rule comes into force (see our briefing here for background) as set out in the FCA's October 2022 consultation paper on the UK's Sustainable Disclosure Requirements. This stresses that firms understand and apply the existing clear, fair and not misleading requirements when making sustainability-related claims.