The Financial Conduct Authority (FCA), the UK’s financial services sector regulator, has sent a warning shot across the bows of UK authorised firms which are providing ‘s21 approval’ for financial promotions on behalf of ‘unauthorised persons’ (businesses that are not authorised (licensed) to carry on regulated activities by the FCA or the Prudential Regulation Authority (PRA)).
‘s21 approval’ refers to the approval of financial promotion (any ‘invitation or inducement to engage in investment activity’) under section 21 of the UK’s Financial Services and Markets Act 2000. It is a criminal offence for an unauthorised person to publish a financial promotion ‘unless the content of the communication is approved …. by an authorised person’ (a business authorised to carry on regulated activities by the FCA or the PRA).
The FCA’s 11 April 2019 ‘Dear CEO’ letter reminds authorised firms that before approving any financial promotion they must carry out appropriate due diligence, ensure that the advertisement is ‘fair, clear and not misleading’ and complies with the financial promotion rules (COBS 4.10.2R(1) of the FCA’s Handbook) and the FCA’s guidance (COBS 4.2.4G).
The FCA is particularly concerned about the promotion of mini-bonds and other unlisted securities to retail clients. Its letter says: “Retail investment products can expose consumers to a range of differing risks and returns and, particularly where those risks are not adequately explained, this can cause significant harm to investors and undermine the effective functioning of the sector as a whole.”
The FCA has threatened a range of sanctions against firms which do not comply with their statutory and regulatory obligations when approving financial promotions, including criminal proceedings.