The FCA has created a new function to help newly authorised firms adapt to its supervision as they start up and grow. The regulator says it knows that newly authorised firms can sometimes struggle with its rules. Many grow quickly in their early stages, so any teething problems can affect many consumers within a relatively short space of time.
Rather than wait for things to go wrong, the FCA has created a new Early and High Growth Oversight function that provides closer supervision and help for recently authorised firms. As well as raising standards, this should help the regulator spot and tackle potential harms sooner.
During 2021 and 2022, the FCA ran a pilot with 32 newly authorised firms to help them adapt to supervision, understand the regulator’s requirements and improve standards where necessary. The pilot found that one of the most common themes was the extent to which firm understood the rules for promoting financial products to the public.
Some were describing products and services on their websites as ‘FCA approved’. The regulator has stressed that it does not ‘approve’ products or services, but simply authorises firms and gives them permission to offer regulated products and services.
Other firms’ websites wrongly claimed that ‘We worked with the regulator to deliver a product/ service’. Again, the FCA emphasised that it does not work with firms to develop what they offer.
Others were advertising services for which the FCA hadn’t given them permissions. Consumers have much less protection if they sign up for services the firm doesn’t have permission to provide, and the FCA says it intends to crack down on this.
Other firms were advertising attractive investment returns that they couldn’t substantiate. The FCA found this was misleading, and could attract customers on the basis of unattainable rates of return. In each such case it detected, the FCA said it had intervened to ensure firms made the necessary changes.
The regulator also provided webinar training to around 500 people working in newly regulated firms, to remind them of its rules on financial promotions and share examples of the pitfalls commonly found on firms' websites.
The FCA has now launched Phase 2 of its pilot, increasing the number of newly-authorised firms under review to 300. The findings will then be used to identify other common areas where firms need to raise their standards to meet the FCA’s rules.
Links: https://www.fca.org.uk/about/case-study/raise-standards-new-firms-promotions