The U.K. Financial Conduct Authority has launched a consultation on proposed changes to the financial promotion rules. The proposals range from rules relating to the approval by authorized firms of financial promotions of unauthorized firms and the new regime for qualifying crypto-assets and other high-risk investments. Many of this suite of changes address or build upon recommendations of the Gloster Report or are otherwise related to the fall-out from the London Capital & Finance plc scandal. Responses to the consultation may be submitted until March 23, 2022. The FCA intends to publish its final rules in Summer 2022.
Changes to Rules for High-Risk Investments
The FCA is proposing to organize the rules into three different categories:
- Readily Realizable Securities, which are listed and/or exchange traded securities, for which no additional marketing restrictions apply.
- Restricted Mass Market Investments, which are Non-Readily Realizable Securities (NRRS), Peer-to-Peer (P2P) agreements and qualifying crypto-assets (which HM Treasury has confirmed will be brought within the Financial Promotion regime), and for which marketing to retail investors will be allowed subject to restrictions.
- Non-Mass Market Investments, which are Non-Mainstream Pooled Investments (NMPI) and Speculative Illiquid Securities (i.e., including speculative mini-bonds) for which marketing to retail investors will be prohibited. The FCA states that it is not, at this stage, taking forward its proposals to extend the speculative illiquid category to include equity shares or P2P agreements with similar characteristics to a speculative mini-bond. The FCA will revisit the issue later in the year.
Strengthening Rules to Enhance Consumer Protection
The FCA is proposing to amend the financial promotion rules for Restricted Mass Market Investments and Non-Mass Market Investments. It is proposed that firms would have three months from publication of the final rules to comply with the new rules. The proposed changes include:
Enhancing the Rules Applicable to Authorized Firms Approving the Financial Promotions of Unauthorized Firms
HM Treasury has announced that it will be implementing the regulatory gateway for the approval of financial promotions of unauthorized firms. This will mean that authorized firms will be banned from approving financial promotions of unregulated firms and will need to apply to have the prohibition removed in whole or part before they are able to approve financial promotions of unauthorized firms. The change will be made through legislation amending the Financial Services and Markets Act 2000.
The FCA is proposing to amend its rules on the approval of financial promotions of unauthorized firms by authorized firms, including, among other things, to:
Firms would be required to keep records of how they meet the requirement for each approved financial promotion. The FCA is considering how these changes may be linked into the Senior Managers and Certification Regime.
The FCA is also considering stronger rules for ensuring financial promotions remain compliant, including requiring firms to take reasonable steps to monitor the continuing compliance of approved promotions and requiring firms to collect, every three months, attestations of "no material change" from clients with approved promotions.
The FCA is proposing to allow firms three months from the publication of the final rules to comply.
Classifying Crypto-Assets as Restricted Mass Market Investments
The FCA is proposing to apply to qualifying crypto-assets the same rules proposed for other high risk investments classed as Restricted Mass Market Investments. The FCA proposes that the new rules would apply from the date qualifying crypto-assets are brought within the financial promotion regime.
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