The FCA have recently published a policy statement (PS22\/10) \u201cStrengthening our financial promotion rules for high-risk investments and firms approving financial promotions\u201d. <\/em>These new rules for authorised firms are part of HMT\/FCA\u2019s proposals to overhaul the UK Financial Promotion regime.<\/p>\n The new rules are applicable to all firms involved in the issuance of Financial Promotions and whilst the FCA have been clear these rules are aimed at high-risk investments; the Regulator has stated it will be looking to change the regime for all authorised firms going forward.<\/p>\n The FCA are concerned that given the current economic climate, notably inflation rates being as high as they are, consumers will be more likely to invest in high-risk investments, due to the potential returns they can generate. At a time when people are dealing with a cost-of-living crisis, there is concern consumers may look to engage with investments outside of their risk tolerance.<\/p>\n The FCA hopes that the implementation of these new rules will help to ensure firms are:<\/p>\n High-risk investments are described by the FCA as investments which may offer the chance of higher returns but put consumers money at higher risk.<\/p>\n Some examples of high-risk investments include Cryptoassets, Mini bonds (high interest return bonds), structured products and Contracts for Difference (CFDs).<\/p>\n As part of the recent policy statement, the FCA have categorised high-risk investments into groups by putting products with similar characteristics together:<\/p>\n To note cryptoassets currently fall outside of the scope of the rules although the Treasury is legislating to bring them within rules for financial promotions.<\/p>\n Most of the rule changes will come into force on 1st<\/sup> February 2023, apart from the changes to Risk Warnings which take effect from 1st<\/sup> December 2022.<\/p>\n Other than the above noted new classifications of high-risk investments (Chapter 3), the FCA rules focus on making changes to the \u201cConsumer Journey\u201d and the approval and communication of marketing materials\/financial promotions.<\/p>\n The FCA believe it is currently too easy for consumers to click through and access high-risk investments without acquiring an adequate understanding of the risks involved. To address this, the FCA are putting in place the following seven measures:<\/p>\n The following wording has also been suggested as a standard for firms to follow:<\/p>\n \u201cDon\u2019t invest unless you\u2019re prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong. Take 2 mins to learn more.1\u201d 1<\/sup><\/strong> The \u201cTake 2 mins to learn more\u201d<\/strong> should link through to a full risk summary which will be in a prescribed format (which will be contained within FCA COBS 4 Annex 1R). <\/p>\n <\/p>\n <\/p>\n [Client name], this is a high-risk investment. How would you feel if you lost the money you\u2019re about to invest? Take 2 mins to learn more<\/u>.<\/strong><\/p>\n<\/li>\n <\/p>\n \n<\/ul>\n<\/li>\n <\/p>\n <\/p>\n Perhaps the biggest change from the new rules relates to those firms which are approving financial promotions. Such Firms will be required to ensure the person approving Financial Promotions has the relevant expertise and will hold personal responsibility for the overall quality of Financial Promotions issued to consumers.<\/p>\n The FCA has prescribed the following rules to be implemented by those approving Financial Promotions:<\/p>\n Firms that promote high-risk investments need to familiarise themselves with the FCA\u2019s final rules and carry out the following:<\/p>\n Firms that approve financial promotions need to:<\/p>\n FCA Financial Promotion Rules The FCA have recently published a policy statement (PS22\/10) \u201cStrengthening our financial promotion rules for high-risk investments and firms approving financial promotions\u201d. These new rules for authorised firms are part of HMT\/FCA\u2019s proposals to overhaul the UK Financial Promotion regime. The new rules are applicable to all firms involved in the… Read more »<\/a><\/p>\n","protected":false},"author":10,"featured_media":1370,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1452","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uk"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/posts\/1452","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/comments?post=1452"}],"version-history":[{"count":10,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/posts\/1452\/revisions"}],"predecessor-version":[{"id":1489,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/posts\/1452\/revisions\/1489"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/media\/1370"}],"wp:attachment":[{"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/media?parent=1452"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/categories?post=1452"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.effectacompliance.com\/wp-json\/wp\/v2\/tags?post=1452"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}Why are these Rules coming through now?<\/h3>\n
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What are High-Risk Investments?<\/h3>\n
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When are the new rules coming into force?<\/h3>\n
What are the new rule changes?<\/h3>\n
Changes to the consumer journey<\/h3>\n
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What do these measures mean?<\/h3>\n
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\nThe FCA have made changes to their guidance surrounding Risk Warnings. They have stated that risk warnings must be:<\/p>\n\n
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\n<\/sup><\/strong><\/p>\n
\nThis proposed standard wording is to ensure Firms move away from the standard \u201cCapital at risk\u201d statement, which the FCA does not believe is always understood by consumers.<\/li>\n
\n<\/strong>The new rules place restrictions on direct offer financial promotions (\u201cDOFP\u201d), specifically banning inducements to invest for DOFP\u2019s.
\nDOFP\u2019s are time pressured promotions, for example ones which include a \u201cbuy now\u201d or \u201cinvest now\u201d button or a form which asks for the customer\u2019s bank details up front without any prior contact.
\nIn addition, the FCA have decided to ban activity that incentivises investments such as \u201crefer a friend\u201d or new joiner bonuses.<\/li>\n
\nFor first time investors with a firm, the FCA are introducing a minimum 24 hour cooling off period between when the consumer requests to be able to invest and when they are able to place their money in the investment. It should be noted that during this time firms are allowed to conduct onboarding checks etc.<\/li>\n
\n<\/strong>For first time investors with a firm, a personalised risk warning should be displayed as a \u2018pop-up or equivalent\u2019. This warning must fill the centre of the screen and be followed with the client specifying whether they wish to leave or continue. The suggested wording is below. Firms are able to tailor this, but any changes must have an accompanying rationale which the Firm will need to record.<\/p>\n
\nThe new rules introduce an evidence component to investor categorisation. For example, for high-net-worth investors their level of income must be stated. To protect privacy of investors this can be rounded to the nearest \u00a310,000\/\u00a3100,000, respectively. Firms will not be required to request further evidence than this outside of their standard Source of Funds\/Wealth evidence. However, the FCA believes this will help improve the self-certification process.<\/li>\n
\n<\/strong>To ensure Firms are properly ascertaining whether the client has sufficient knowledge and experience:<\/p>\n\n
\n<\/strong>In the case of Non-Mass Market Investments (NMMI\u2019s), self-certified sophisticated or high-net-worth investors are subject to a preliminary assessment of their suitability. This is in order for the firm to assess whether the investment will meet the client\u2019s needs and objectives.<\/li>\n
\n<\/strong>The FCA have mandated firms to record metrics relating to client categorisation and appropriateness. The regulator states firms should already have a record of this information and believe this should not be an additional regulatory burden.<\/li>\n<\/ol>\nStrengthening the role of Approver<\/h3>\n
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What should firms be doing now?<\/h3>\n
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Effecta can help by:<\/h3>\n
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