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FCA strengthens the UK Financial Promotion Rules for High-Risk Investments – What do the changes mean for me?

Next week, the UK’s financial regulator (the “FCA”) will usher in the first wave of promised changes to the current FCA rules governing financial promotion to retail consumers, effective immediately. The remaining rule changes will follow early next year (in February). We’ve broken down what those changes are, what they practically mean for the different groups which they affect, and what else we think is worth bearing in mind.

Background
Following almost eighteen months of consultation and discussion with individual investors, industry experts, and product providers, the FCA confirmed in August the final set of changes which it intends to make to the current regime for those financial promotions which are targeted at the consumer investment market.

The regulator is concerned that, owing largely to a rapid rise in the use of digital marketing by product providers, platforms and fundraising companies combined with a period of historically low interest rates followed by now rising inflation, consumers are being led into higher risk investments which do not necessarily correlate to their individual appetite for risk. Risk warnings such as the ubiquitous ‘capital at risk’ have long lost their meaning and have simply become “wallpaper” for viewers of financial promotions, while investor journeys from first sight of an initial promotion (e.g., on social media or billboard advertising) through to the investor completing an application form to invest (known as a ‘direct offer financial promotion’) have in many cases become ‘tick-box’ exercises. The conclusion has been that existing rules consequently require strengthening to better protect consumers.

FCA guidance and rules only apply to FCA-authorised firms. They do not apply to unauthorised firms or individuals (i.e., any company or person which does not need to be regulated) and this is worth keeping in mind. FSMA2 (and the statutory instruments made under it such as the Financial Promotion Order3) which does apply to everyone is not changing for the moment. However, it is expected to change very soon following separate consultations held by HM Treasury on the need to: in-scope cryptoasset promotions within the legislation4 (somewhat urgent given recent events), update the current criteria for what constitutes a ‘high-net worth individual’ and ‘sophisticated investor’5 (as some of the metrics are widely considered to be outdated), and introduce a statutory gateway for authorised firms wishing to approve the promotions of others6 (at the moment any authorised firm can approve a third-party promotion).

For the full article and to find out everything you need to know about the changes, head to RW Blears’ blog here.

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