The Treasury is looking to toughen up how the FCA deals with financial promotions for unauthorised firms by introducing a new ‘regulatory gateway’.
Under current rules, an authorised firm can approve a financial promotion of an unauthorised one.
Any authorised firm can do so, without a specific process to follow to check is it competent to sign off on the unauthorised firm’s advertisement.
In a consultation released today, the government says this may not be a “strong enough safeguard” to ensure promotions are fair, clear and not misleading as per FCA rules.
The Treasury’s paper proposes a regulatory gateway, forcing firms to obtain approval from the FCA if it wants to approve an unauthorised firm’s promotions.
This would be introduced “in order to strengthen the FCA’s ability to ensure the approval of financial promotions operates effectively,” the Treasury writes.
The issue of unregulated investment promotions has shot to prominence through recent mini-bond sales scandals, where advertisements were seen by unsophisticated clients that may not have been appropriate for them.
Collapsed mini-bond provider London Capital and Finance, for example, had more than £20m-worth of promotions appear on Google before it went under and was investigated by the FCA.
The use of terms such as “secured” has since been challenged by investors seeking compensation.
The FCA has instituted a ban on mini-bond marketing to retail investors in the aftermath.
Cancel culture
The Treasury has also published a paper today to make sure the FCA follows the right process to kick firms off its register in a timely fashion once their authorisations cease.
“The FCA’s regulatory population has significantly expanded since the establishment of the Financial Services and Markets Act 2000,” the paper reads. “This means the current process for cancelling a firm’s authorisation is no longer sufficient to allow the FCA to quickly cancel a firm’s authorisation where they suspect they are no longer carrying out authorised activity and remove these firms from the Financial Services Register.”
The Treasury is eyeing an additional process through which the FCA can cancel the authorisation of firms it suspects are no longer carrying on FCA-regulated activities.
This includes situations when a firm has failed to pay its fees, respond to regulatory correspondence or file returns, for example.
The Treasury notes that under existing rules, the FCA would have to go about gathering evidence to show that, for instance, the firm would be unable to satisfy the basic regulatory threshold conditions if it wanted to remove it from the register.
Instead, the FCA would now be able to serve a first notice by letter under a streamlined process. If the firm does not respond within a month, the FCA can make a notice public that it intends to remove authorisation, and can follow through on cancellation a month after that.
