The new 2023 FSMA Regulation, which may be cited as the ‘Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023’ has been laid before Parliament on 6 September 2023.
This introduces modifications to the Financial Services and Markets Act 2000, including the incorporation of a new sub-section 21(2A) and a new section 55NA. These changes are designed to establish a regulatory gateway for an authorised person to navigate before they are permitted to endorse the financial promotions of unauthorised entities. Any authorized person wishing to endorse financial promotions for unauthorised entities will be obliged to secure permission from the Financial Conduct Authority (FCA), unless a specific exemption to the gateway is applicable.
Why was this amendment necessary?
Section 21 of FSMA establishes a general restriction on the communication of financial promotions. In accordance with section 21(2)(b), if an unauthorised firm intends to disseminate a financial promotion, it must first obtain approval from an authorised firm, unless the promotion can be communicated in accordance with a relevant exemption.
In recent years, the FCA has identified a necessity for enhanced safeguards within the regulatory framework in order to ensure that the endorsement by an authorized person truly serves as an effective mechanism for safeguarding consumers against potentially detrimental financial promotions. The FCA have observed instances where authorised firms approve any financial promotions from unauthorised firms without undergoing an evaluation process in line with FCA requirements to determine their suitability or competence.
The Regulatory Gateway
The modifications to section 21 of FSMA include the removal of the general allowance for unauthorised persons to communicate financial promotions by the approval of authorised firms. All authorised firms will now be subject to a requirement that prevents them from granting approvals unless granted permission to do so by the FCA. Any existing authorised entity wishing to engage in the approval of financial promotions will need to submit a Variation of Permission (VOP) to the FCA.
Through this submission, the firms can request changes to the general requirement, by either having this varied, allowing them to approve specific types of financial promotions, or by cancelling it altogether, allowing them to approve all types of financial promotions.
The Exceptions to the Regulatory Gateway
Section 55NA(1) introduces three exceptions for when an authorised person is exempt from the requirement to obtain permission through the new regulatory gateway:
- the authorised person that approves the communication also prepared the content of the communication;
- the unauthorised person prepared the content of the communication, and is in the same group with the authorised person that approves the communication; and
- the content of the communication is prepared by an appointed representative, that is the unauthorised person, in relation to any regulated activity that their principal, that is the authorised person, has accepted responsibility for.
What to expect next
After the FCA initiates the regulatory gateway, authorised firms must navigate through it prior to granting approval for financial promotions by unauthorised firms. For any authorised firm seeking to communicate financial promotions of unauthorised entities, securing permission from the FCA will be a prerequisite, unless an exemption within the regulatory gateway’s framework applies.
Starting from the 6th September 2023, the FCA will possess the authority to issue directives, provide guidance and to make rules in relation to the new financial promotions legislation. However, the Regulation will come into force on 27th September 2023. According to the FCA, we should expect further guidance to be published regarding the implementation of this policy.
If you want to know more about how the new modifications to the Financial Services and Markets Act 2000 affect your business, please get in touch with our team of Fintech specialists.
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