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Financial Promotions Regime: Navigating Major Changes in Early 2024

Financial Promotions Regime: Navigating Major Changes in Early 2024

Financial Promotions

Financial Promotions: At Compliance Consultant, we understand the critical importance of staying up-to-date with regulatory changes, especially in the ever-evolving landscape of financial promotions. In this comprehensive guide, we will delve into the two key changes to the financial promotions regime introduced by the Financial Conduct Authority (FCA) and provide you with valuable insights to navigate these changes effectively.

The Financial Conduct Authority has recently ushered in significant changes to the financial promotion regime, impacting both authorised firms and high net worth (HNW) or sophisticated investors. It is essential to grasp these changes, their implications, and the steps you need to take to ensure compliance.

Key Changes to the Financial Promotion Regime

1. Authorised Firm Approval

The first key change revolves around the introduction of a new regime under which authorised firms must obtain formal FCA approval to demonstrate their capacity and competence in approving financial promotions. Existing authorised firms have a deadline of February 6, 2024, to apply for this approval. New applicants for authorisation will also be entitled to seek this permission as part of their Part 4A application process.

Why It Matters:
This change signifies a shift towards stricter oversight of financial promotions, ensuring that they meet the highest standards of clarity and fairness. It empowers the FCA to assess the suitability of promotional material for the targeted investors.

Implications:
Firms offering the approval service will likely increase costs for issuers seeking approval, primarily due to rising compliance costs. Additionally, specific reporting requirements, including more frequent FCA updates for certain financial products or services, will be mandatory.

2. Changes to HNW and Sophisticated Investor Promotions

The second significant change involves alterations to the regime for financial promotions targeting high net worth (HNW) or sophisticated investors. These changes, effective from January 31, 2024, include revisions to the gross income and asset tests that define HNW individuals.

Background:
The financial promotion of investments in the UK is subject to the “financial promotion restriction” in the Financial Services and Markets Act 2000 (FSMA). It mandates that financial promotions can only be made by authorised persons, with approved content or under specified exemptions.

Why It Matters:
These changes impact capital-raising from individual investors who fall within the exemptions regime under s 21(5) FSMA 2000.

Implications:
HNW individuals and sophisticated investors will need to meet revised criteria, potentially affecting their eligibility for private capital-raising opportunities.

What You Need to Do

For Authorised Firms

If your firm intends to offer the approval service under the new FCA regime, here are essential steps to consider:

1. Submit a Variation of Permission Application (VOP): Ensure your firm can demonstrate the capacity, staff, resources, and experience required to assess promotional material adequately.

2. Cost Management: Be prepared for increased compliance costs, which may be passed on to issuers seeking approval.

3. Reporting Requirements: Understand the specific reporting obligations, including more frequent FCA updates for certain financial products or services, retail mass-marketing bans, or qualifying cryptoassets.

4. Timeline: Act swiftly; the deadline for application is February 6, 2024.

For Promoters Targeting HNW and Sophisticated Investors

If your promotional activities target HNW individuals or sophisticated investors, consider the following:

1. Reassess Eligibility: Review the revised criteria for HNW individuals and self-certified sophisticated investors to ensure your target audience remains eligible.

2. Communication: Maintain transparent communication with investors and keep them informed about any changes to eligibility criteria.

3. Compliance: Stay vigilant about compliance with the updated regulations, as non-compliance can have legal and financial consequences.

Conclusion

In a rapidly changing regulatory environment, it’s crucial to adapt and thrive. These changes to the financial promotion regime represent a significant shift in the way financial promotions are approved and targeted. By staying informed and proactive, you can ensure compliance, mitigate risks, and continue to navigate the financial services landscape successfully.

Remember, Compliance Consultant is here to provide reliable governance review services, continuous learning resources, and networking opportunities to support you in achieving a seamless and fully compliant organisational structure. Feel free to reach out to us for assistance and guidance in this evolving landscape.

Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Consult with legal professionals for specific guidance related to your situation.

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