Checklist: Key checks for firms to consider when approving financial promotions (UK)

Introduction

This checklist will assist in-house counsel, private practice lawyers and risk and compliance teams to consider the requirement to obtain permission from the Financial Conduct Authority (FCA) (including notification and reporting obligations) when approving financial promotions.  For the purposes of this checklist, reference to a firm means an authorised person approving a financial promotion of, and for, communication by an unauthorised person who is not subject to an exemption.

This checklist addresses the following steps:

1. Is the firm able to approve financial promotions?
2. Does the financial promotion comply with the financial promotion rules?
3. Is the firm aware of all ongoing requirements?

It is presented as a list of requirements that you can tick off as they are addressed. At the end of the document there are explanatory notes and specific notes corresponding with each step in the checklist.

This checklist can be used in conjunction with the following How-to guides: Overview of the financial promotion regime, Financial promotions and social media guidance, The FCA’s Consumer Duty: putting the needs of customers first, Checklist: Embedding the Consumer Duty: practical considerations and Quick view: The financial promotion regime and marketing of cryptoassets.

Step 1 – Is the firm able to approve financial promotions?

Step 2 – Does the financial promotion comply with the financial promotion rules?

Step 3 – Is the firm aware of all ongoing requirements?

Explanatory notes

Legal framework

Financial promotions

Financial promotions are communications that invite or induce investors to engage in investment activity (or claims management activity) ‘in the course of business’ ie, communications with a commercial interest.

Restrictions apply to financial promotions across a broad range of financial products and services, including deposits, investment business, mortgages, insurance, consumer credit and certain qualifying cryptoassets. Financial promotions can be made via a variety of media, such as advertisements, social media posts and marketing brochures.

Regulation under section 21 of the Financial Services and Markets Act 2000 (as amended) (FSMA) is known as ‘the financial promotion restriction’. This applies to communications capable of having an effect in the UK regardless of where the firm doing the marketing is based. This can capture UK-based firms or those operating from overseas (see PERG 8.8): a point to be noted especially when advising firms operating cross-border via global platforms that could be seen by UK consumers.

The FCA as conduct regulator has oversight of financial promotions and this is an area of increased regulatory focus and anyone partaking in promotional activity or agreeing to approve financial promotions needs to exercise caution. Communicating a financial promotion in breach of the FCA rules is a criminal offence under section 25 of the FSMA punishable by up to two years’ imprisonment and/or an unlimited fine. Directors and officers of a firm that commits a regulatory offence are also at risk of being held personally liable in certain circumstances. Aside from criminal sanction, the FCA have wide powers to stop unauthorised promotions and remedy harm caused. More detailed analysis of FCA enforcement is outside the scope of this checklist.

Marketers must also consider standards set out in the Advertising Codes of the Advertising Standards Authority (ASA), the UK’s independent regulator of advertising who may seek advice from the FCA if needed.

Financial promotions can only be lawfully communicated:

• by an authorised firm (ie, authorised by the FCA or the Prudential Regulation Authority (PRA) under Part 4A of the FSMA);
• where the content of the promotion is approved by an authorised firm who has the requisite FCA permission to do so (approver firm); or
• when an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (SI 2005/1529) (FPO) applies. The FPO contains certain exemptions which enable unauthorised persons to issue promotions, including to ‘high net worth individuals’ and ‘self-certified sophisticated investors’, subject to meeting the criteria.

For further information, see Chapter 8 of the FCA’s Perimeter Guidance Manual (PERG) and How-to guide: Overview of the financial promotion regime.

Regulatory gateway

Previously, any authorised person could approve any financial promotion for an unauthorised third party even where they did not have expertise in the regulated activity or product type being promoted. As of 7 February 2024, the process for applying via the ‘regulatory gateway’ came into force. The amendments to FSMA were made by the Financial Services and Markets Act 2023 and the Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023 (SI 2023/936). This is a new ‘financial promotion requirement’ on all existing and newly authorised firms restricting them from approving financial promotions of an unauthorised person unless they have FCA permission to do so (subject to exemptions) (see sections 55NA and 55NB of FSMA). The application for permission enables the FCA to have more visibility of firms that are approving promotions and enables them to assess suitability of firms too.

The regulatory gateway was introduced to heighten FCA oversight and supervision, reduce the amount of non-compliant promotions being communicated by unauthorised persons and to protect customers from harm. The FCA were concerned that firms were not undertaking sufficient due diligence or were approving promotions for products that they did not fully understand.

Approver permission is not however a blanket permission to approve any type of financial promotion. The FCA can reject applications, modify the permission applied for on different terms than set out in the application (eg, by varying investment types to be considered) or vary or cancel an existing permission (either on request of the firm or by using FCA own-initiative powers). An application fee of £5,000 applies.

Approver firms require FCA permission unless:

• an exemption applies (see step 1.3 below); or
• they have applied for approver permission before 7 February 2024 and the firm is awaiting the FCA’s final decision.

The FCA assessment will be ‘proportionate and robust’ and those applications posing the highest risk of harm (for example in relation to high-risk investments) may result in the FCA undertaking further due diligence on the applicant (which could include one-to-one interviews with key personnel). Information about approver firms’ permissions is now publicly available on the Financial Services Register.

Firms intending to apply for gateway permission or a variation or cancellation of permissions are advised to discuss this with their FCA supervisory contact (in line with PRIN 2.1, Principle 11 to deal with the regulator in an open and cooperative way). Gibraltar-based firms exercising passport rights in the UK will be also able to apply for permission to approve financial promotions (unless an exemption applies). If an application is unsuccessful, firms will need to cease all approvals of financial promotions immediately.

Further information on applying to approve financial promotions for unauthorised persons is set out in the FCA webpage and SUP 6A of the FCA Handbook. The FCA expects applicants to be aware of the rules, submit a high-quality, comprehensive application and firms need to take time to prepare the application and provide all supporting documents. If in doubt, taking specialist legal and compliance advice is advisable to ensure the application is complete upon submission.

Step 1 – Is the firm able to approve financial promotions?

1.1 Does the firm possess the necessary permission to approve financial promotions?

A ‘tight’ application window opened from 6 November 2023 to 6 February 2024. If the firm did not apply for permission during this application window, from 7 February 2024, it is not able to approve financial promotions for unauthorised persons until it submits an application for approver permission or an exemption applies.

Existing authorised firms who applied within this three-month window benefit from a transitional regime and can continue to approve promotions for unauthorised firms until their application is determined by the FCA. The FCA can grant permission in accordance with the application request (in which case, the firm can continue to approve financial promotions) on more limited terms (eg, a narrower range of investment types) and the firm will have to follow the FCA direction, or the application may be refused.

The timeframe for the FCA to make the determination is within the usual statutory deadlines (ie, six months and 12 months for complete and incomplete applications, respectively). The transition period ends for each firm when they receive the FCA decision.

1.1.1 Variation of permission (VOP)

For existing authorised firms, new applications for permission under the regulatory gateway should be made by submitting a variation of permission (VOP) application via Connect the FCA online portal for applications and notifications. Applicants are likely to seek a VOP in line with their Part 4A permission. Where requests for approvals extend beyond the ‘normal investment type’ of the firm, the FCA will look closely at the internal systems and controls to consider whether to grant permission. See Checklist: Preparing an application to the FCA or the PRA to vary a Part 4A permission at the request of a firm.

1.1.2 Firms seeking authorisation for the first time

For firms seeking authorisation for the first time, the application to approve financial promotions should be made as part of their application for Part 4A permission. The applicant firm will be asked to confirm whether they intend to be approving financial promotions and if so, complete the financial promotions form as part of the application. The FCA can only grant an application for approver permission where the applicant has been approved for authorisation and firms need to meet all criteria in their application to qualify. See Checklist: Preparing an application to the FCA or the PRA for a Part 4A permission.

1.2 Is the firm prepared to make an application?

When applying (whether VOP for first-time authorisation), it is crucial to submit a complete, clear and comprehensive application.

Don’t forget to include:

• the type of promotion the firm intends to approve;
• an explanation of the firm’s expertise to approve promotions;
• evidence of the firm’s policies, systems and controls (see COBS 4.10.1G which sets out the rules for approving and confirming compliance including the rules in SYSC 3 and SYSC 4. Different rules apply in the PRA Rulebook for Solvency II firms); and
• details of historic approvals.

It is necessary to provide all information and articulate all relevant aspects so that it is well prepared and easy to follow. The FCA will assess applications by reference to its operational objectives (one of which is securing an appropriate degree of protection for consumers), and firms should demonstrate how they meet minimum standards (ie, the threshold conditions in the FSMA). The timeline and questions that applicants may be asked are listed in Annex 1 and 2 of PS23/13 – Introducing a gateway for firms who approve financial promotions.

1.2.1 Points to note

1.3 Is the firm exempt from the need to apply to the gateway?

There are three exemptions from the regulatory gateway set out in the Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 (SI 2023/966). Guidance is set out in PERG 8.9, and authorised persons can approve financial promotions without the requirement to obtain permission where they approve:

• their own financial promotions (ie, they have prepared the content) for communication by an unauthorised person;
• their appointed representatives’ (ARs) financial promotions (in respect of the regulated activities that they have accepted responsibility for) (see section 39(2) FSMA)); or
• the financial promotions of unauthorised persons within the same corporate group.

Step 2 – Does the financial promotion comply with the financial promotion rules?

Provided that the requirements of step 1 have been met, and the approver firm has the requisite permission (or an exemption applies), the next step is to consider compliance with the financial promotion rules in the FCA Handbook and relevant sector-specific guidance.

These protections ensure that the financial promotions present an accurate ‘picture’ of the products and/or services they are designed to promote. Customers are enabled to make informed investment decisions when the information is presented in a way that they can understand. The FCA notes that adverts that are unclear, unfair or misleading can ‘lead consumers to access products that do not suit their circumstances’ (see paragraph 1.10 of PS23/13).

2.1 Is the financial promotion fair, clear and not misleading?

Approver firms will be expected to determine that the financial promotion is about a commercially viable product and that it is authentic (ie, that claims made about it can be substantiated). Investors need accurate, clear and transparent information to make good investment decisions and approver firms must consider that the financial promotions they approve support retail customers’ understanding (see step 2.3.1 below).

Financial promotions need to be fair, clear and not misleading and firms must consider both the promotion’s substance (ie, the fairness and veracity of claims) and presentation (ie, whether risk warnings are given sufficient prominence) to make sure customers are clearly informed about their investment choices, together with risks, costs and benefits (COBS 4.2.1R, Principle 7 of PRIN 2.1, PRIN 2A.5.3R). This checklist focuses mainly on retail investment business but note that different specific FCA Handbook rules apply across sectors eg, Insurance and Mortgages.

Where firms are reviewing financial promotions (in particular, caution is required with ‘new’ products like qualifying cryptoassets), the firm should analyse the substance of the promotion before approving it for communication by an unauthorised person. This may include considering supporting information or additional disclosures and how risk warnings are signposted. Those signing off promotions ‘must understand the product and ensure that the promotion is accurate and fairly balances risk and reward.’ A regular review of internal financial promotion frameworks and refresher staff training is recommended both at induction (to understand how the approval process works) and for monitoring ongoing compliance and to establish clear lines of reporting and escalation procedures. See FCA, Financial promotions case studies, and How-to guide: Understanding the rules of communications with clients, including financial promotions.

2.2 Consider whether any additional financial promotion rules and guidance apply

Approver firms also need to consider whether wider FCA rules and guidance to strengthen protection of financial promotions may apply, including:

2.3 Has the firm considered the wider regulatory obligations?

2.3.1 Consumer Duty

In force since 31 July 2023, the Consumer Duty imposes a higher expectation of standards across retail financial services markets. One of the overarching outcomes is that consumers are protected from harm and firms must have regard to their responsibilities under the duty and specifically consider how communications deliver good outcomes for retail customers and promote consumer understanding.

Approver firms will need to ensure that financial promotions:

• meet the information needs of customers;
• are likely to be understood by the intended target customers;
• equip customers to make decisions that are effective, timely and properly informed; and
• are tailored to the characteristics of the intended customers, including any characteristics of vulnerability, the complexity of products, the communication channel used, and the role of the firm – firms need to keep this under review on an ongoing basis.

See Principle 12 and PRIN 2A.1.8G.

Approver firms must meet the expectations where they are relevant to their role (the guidance in PS23/13 provides examples when some of the requirements in PRIN 2A may not be eg, monitoring communications that are not financial promotions, the timing of a communication by an unauthorised person or testing communications). This also applies to social media marketing and firms should ensure such communications comply and keep their policies under review.

FG22/5 and PS22/9 give more detail on the relationship between the Consumer Duty and authorised firms’ obligations, and see also How-to guide: The FCA’s Consumer Duty: putting the needs of customers first and Checklist: Embedding the Consumer Duty: practical considerations.

2.3.2 Anti-greenwashing

The FCA has recently published guidance (FG24/3) on its new anti-greenwashing rule, which has been in force since 31 May 2024, with naming and marketing rules in force from 2 December 2024. The new rule aims to protect consumers by ensuring that sustainability-related claims are substantiated and fair, clear and not misleading. It has a broad application, extending to all FCA authorised firms that either communicate with clients in the UK in relation to products or services or which communicate and/or approve financial promotions to persons in the UK.

The FCA consulted on extending the rule further to portfolio managers – these are firms who manage groups of investments for consumers (see CP24/8 – proposing to extend the sustainability disclosure requirements regime to portfolio management).  The FCA has since reflected on the feedback received and decided not to proceed with the proposal at this time.  There is no timeline for what the FCA will do next. 

The anti-greenwashing rule is one part of a package of measures following the October 2022 consultation (CP22/20) which led to policy statement in PS23/16 – the Sustainability Disclosure Requirements (SDR) and investment labels regime.  See How-to guide: FCA sustainability disclosure requirements and labelling regime.

For an overview of greenwashing generally, see How-to guides: How to understand and avoid the risks of greenwashing and How to navigate the regulatory and litigation risks associated with the UK and the EU; and Checklist: Greenwashing risk assessment.

Step 3 – Is the firm aware of all ongoing requirements?

Approver firms will need to comply with ongoing notification and reporting requirements with certain limited exceptions eg, where approver firms benefit from the exemptions noted at 1.3 these may not apply. This should be checked on a case-by-case basis. These specific obligations were introduced to heighten FCA oversight of approver firms and provide the FCA with access to data on approvals, withdrawals or amendments.

3.1 Notifications

Ensure that the approver firm is aware of its notification and reporting obligations to the FCA via Connect, including:

• when it approves ‘high-risk’ financial promotions (eg, products subject to a retail mass-marketing ban – ie, non-mass market investments, such as speculative illiquid securities) or a qualifying cryptoasset within seven days of doing so. This notification is required regardless of investor type; and
• when it approves amendments to, or withdraws approval of, a financial promotion due to a ‘notifiable concern’ within seven days of doing so. See definition of ‘notifiable concern’ at SUP 16.31.7R. This could be where it has noted a financial promotion carries a risk of consumer harm or may relate to concerns about the integrity and propriety of the unauthorised person for whom the firm has approved a promotion (eg, where there is a suspicion of fraudulent activity). This applies to any type of financial promotion, regardless of the type of product or services it relates to.
• Firms should always be mindful of their ongoing responsibilities under PRIN 2.1 eg, co-operating with the regulator under Principle 11.

The FCA provides details of the reporting requirements in a table at SUP 16.31.6R, and a copy of each of the communications comprising the financial promotion that is the subject of the financial promotion must also be provided.

Firms should also be aware of the following:

• duty to notify on ‘reasonable notice’ if they intend to begin or cease financial promotions for products subject to marketing restrictions eg, high-risk investments;
• consider whether a particular financial promotion is one that the FCA would reasonably require notice having regard to the firm’s obligations under Principle 11; and
• build periodic monitoring into firm processes, as approver firms are expected to take reasonable steps to monitor each financial promotion for the lifetime of the approved promotion, consider whether there are any changes (such as in the product, service or regulatory environment) and collect quarterly attestations of ‘no material change’ from the unauthorised person from whom they have approved promotions (see COBS 4.10.2R(1B)).

The FCA may raise concerns with a firm’s approvals and request that individual firms submit ad hoc notifications when approving financial promotions for other financial products or services.

3.2 Bi-annual reporting

Approver firms must report in-scope approvals to the FCA on a six-monthly basis within 30 days of the end of each reporting period. A firm must submit its first report in respect of the reporting period beginning on the date on which approver permission is granted to the firm and ending on the earlier of:

• the firm’s accounting reference date; and
• the date falling six months after the firm’s accounting reference date.

A firm must submit a return even if it has not approved any financial promotions or received any complaints during a reporting period.  Note reporting requirements are also in force for firms which applied for approver permission before 7 February 2024 and which are benefiting from the transitional regime (see SUP 16.31).

The FCA has set out their expectation of what is required in SUP 16.31.10R. This includes promotions by product/investment type, how many approvals are made, the number of financial promotions relating to restricted mass market investments and non-mass market investments, the total revenue generated (in sterling) from approval activity and the amount of complaints arising from the approved promotions. Total revenue refers to all income received across a firm’s entire business, both regulated and unregulated.

3.3 Record-keeping

Approver firms must retain records of all approved financial promotions and the sign-off process followed. This includes not only the type and channel of the promotion, but the evidence used to back up the decision to approve and the individuals who signed it off, a final copy of the approved version and whether it requires a review. Retention periods vary according to the type of financial promotion and are set out at COBS 4.11.1R(3). Certain investment firms may also need to monitor compliance with requirements for record-keeping in the MiFID Org Regulation and SYSC 9. Firms need to consider the practical steps to compliance including undertaking a review of their record-keeping policies and internal controls.

3.4 Name of approver firm

Approver firms are required by COBS 4.5.2R to ensure that a financial promotion to a retail client includes the name of the firm and clearly states the date on which it was approved. Firms should give sufficient prominence to their name so clients can undertake their own diligence and where firms encounter space limitations with digital media promotions, the FCA suggests alternative approaches (eg, displaying text with the approver firm reference number with an underlying link that opens a webpage). See How-to guide: Financial promotions and social media guidance.

Additional resources

Primary sources

Financial Services and Markets Act 2000 (Regulated Activities Order) 2001 
Financial Services and Markets Act 2000 
Financial Services and Markets Act 2023
Financial Services and Markets Act 2023 (Commencement No. 2 and Transitional Provisions) Regulations 2023
Financial Services and Markets Act 2000 (Financial Promotion) Order 2005
Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023
Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023 

FCA

CP22/27 – Consultation paper on introducing a gateway for firms who approve financial promotions (December 2022)
PS23/13 – Introducing a gateway for firms who approve financial promotions (September 2023)

Related Lexology Pro content

How-to guides:

Overview of the financial promotion regime 
Financial promotions and social media guidance 
The FCA’s Consumer Duty: putting the needs of customers first

Checklist:

Embedding the Consumer Duty: practical considerations

Quick view:

The financial promotion regime and marketing of cryptoassets

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