What is happening?
The FCA issued, in January 2022, its Consultation Paper CP 22/2 on the promotion of high-risk financial products. The FCA is inviting feedback on its proposals by 23 March 2022. It will consider all feedback before determining its final rules and, subject to the responses received, it intends to confirm its final rules in summer 2022.
The FCA proposes to give firms three months from publishing of final rules to comply with the new requirements for the consumer journey and the new requirements for section 21 approvers.
For requirements relating to cryptoassets, it is proposing that any changes will apply from the date when qualifying cryptoassets are brought within the financial promotion regime.
Why is this happening?
The FCA is acting to address concerns about the ease and speed with which consumers can make high-risk investments by proposing a significant strengthening of its rules on how high-risk financial products are marketed. This is a central element of the FCA’s Consumer Investments Strategy, published in September 2021, which aims to give consumers the confidence to invest and reduce the number of people who are investing in high-risk products that are not aligned to their needs.
‘High risk investments’ refers to those investments which are subject to marketing restrictions under FCA rules. This includes investment based crowdfunding (IBCF), peer to peer (P2P) agreements, other non readily realisable securities (NRRSs), non mainstream pooled investments (NMPIs) and speculative illiquid securities (SISs). They will also include cryptoassets when they are brought within the financial promotions regime. For these product types, the FCA will rationalise its COBS 4 rules under the terms ‘Restricted Mass Market Investments’ and ‘Non Mass Market Investments (see the graphic below).
Under the proposed rules, the FCA would ensure that firms that approve and communicate financial marketing have relevant expertise and understanding of the investments being offered (it proposes to introduce a new rule that will require firms to self assess whether they have the necessary competence and expertise (C&E) in an investment product or service before approving or communicating a relevant financial promotion), improve risk warnings on promotions and introducing some “positive frictions” (using the wording below) and ban incentives to invest, for example via new joiner or refer-a-friend bonuses.
Consumers looking to make certain high-risk investments would also be asked more robust questions about their knowledge and investment experience, after research found many consumers were investing without being aware of the risks.
The FCA’s draft rules include proposed restrictions on the marketing of cryptoassets, in preparation for the Government bringing the promotion of these high-risk investments under the FCA’s remit. When it does, the FCA plans to categorise qualifying cryptoassets as ‘Restricted Mass Market Investments’, meaning consumers would only be able to respond to cryptoasset financial promotions if they are classed as restricted, high net worth or sophisticated investors. Firms issuing such promotions would have to adhere to FCA rules, such as the requirement to be clear, fair and not misleading.
How can we help you with financial promotions or FCA cryptoasset compliance?
If you’d like to know more about how we can help you with your financial promotion or FCA cryptoasset compliance & arrangements, or with any other regulatory compliance issues, our specialist team is here to help.
Contact us today on 0207 436 0630 – or email info@thistleinitiatives.co.uk.