How-to guide: Overview of the financial promotion regime (UK)

Introduction

This guide will assist in-house counsel, private practice lawyers, risk and compliance professionals, and overseas firms wishing to market financial services in the UK understand the regulatory requirements applicable to financial promotions as defined under section 21 of the Financial Services and Markets Act 2000 (as amended) (FSMA). The guide provides a broad overview of the exemptions available under the Financial Services and Markets Act (Financial Promotion) Order 2005 (as amended) (FPO) and the rules applicable to firms approving financial promotions.

This guide covers:

Introduction to financial promotion
The financial promotion regime
Exemptions
Approval process for financial promotions
Developments to note

This guide can be used in conjunction with the following How-to guides: Financial promotions and social media guidance, The general prohibition – beware the consequences of breach and Quick view: The financial promotion regime and marketing of cryptoassets.

Section 1 – Introduction to financial promotion

1.1 What are financial promotions?

Financial promotions cover a broad range of marketing activities and communications relating to financial products or services. Financial promotion can apply to any method of communication and may include advertisements in all forms of media eg, webpages, telephone calls, personal visits to clients and presentations to groups at a seminar. Financial promotions are regulated by the Financial Conduct Authority (FCA). This helps ensure that clients receive accurate and reliable information from firms offering financial services and products so they can make well-informed investment decisions.

The FCA monitors financial promotions rigorously. In Q4 2024, there were 584 alerts on unauthorised firms and individuals issued and 3,697 promotions being amended or withdrawn by authorised firms. For more information, see here.

1.2 Financial promotions and social media

The financial promotion regime is media neutral, which means that financial promotions across all forms of advertising (including social media) may be caught. The focus is on the content of the promotion and the activities of people rather than the medium used to communicate it. On 26 March 2024, the FCA issued FG24/1: Finalised guidance on financial promotions and social media (finalised guidance). This replaces previous guidance FG15/4: social media and customer communications.

The FCA reminds firms that the financial promotions regime applies regardless of what technology is used to make the promotion (including for example, Reddit, Discord and Telegram) (see section 5 below). The finalised guidance helps to clarify regulatory requirements for unauthorised and authorised persons. Firms using ‘finfluencers’ should be careful not to advise people on the merits of investments if not authorised. The FCA sets out a reminder to authorised firms of their obligations to be proactive and take responsibility for what is being promoted. Finfluencers are often seen to target younger audiences and more vulnerable groups, and the FCA is clamping down on illegal or misleading financial promotions. The FCA is stepping up regulatory scrutiny in this area given the broad reach of social media and associated risks of consumer harm. For more information, see How-to guide: Financial promotions and social media guidance.

Section 2 – The financial promotion regime

2.1 The Financial Promotion Restriction

Section 21, FSMA states that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity, unless they are authorised, an exemption applies or the communication has been approved by an authorised person. This is known as ‘the Financial Promotion Restriction’. The term ‘financial promotion’ is not used in FSMA other than in the title of section 21; however, ‘financial promotion’ is a defined term in the FCA Handbook. This guide does not include analysis of financial promotions in relation to claims management activity, which can also be caught by the restriction.

The exemptions from the Financial Promotion Restriction are set out in the FPO. There are several available exemptions in the FPO, some of general application, and some which are more limited in scope. Provided the terms of an exemption are met, generally the unauthorised person can communicate a financial promotion without having to seek the approval of an authorised person. It is not possible to provide a full explanation of all available exemptions in this guide; however, see section 3 for a high-level overview. See also the FCA Handbook Perimeter Guidance manual (PERG) 8.36.6G which sets out the application of the exemptions to different types of promotions.

Authorised firms in the UK (ie, authorised either by the FCA or the Prudential Regulation Authority (PRA)) are not subject to the Financial Promotion Restriction. Instead, authorised firms must comply with FCA rules and principles, treating customers fairly, relevant Consumer Duty obligations and ensuring that all record-keeping requirements are met.

Different sectors have specific financial promotion rules for example, the requirement that financial promotions must be fair, clear and not misleading (see COBS 4.2) which apply to firms carrying out designated investment business and activities in the UK. Firms communicating or approving promotions should be aware of the rules that are relevant to their business in the specific sourcebooks that apply to their business. Depending on the nature of the communication and the audience, this may include due diligence requirements, disclosures and risk warnings with prescribed wording displayed prominently. For further information see How-to guide: Understanding the rules of communications with clients, including financial promotions and Quick view: The financial promotion regime and marketing of cryptoassets.

There is detailed guidance on the Financial Promotion Restriction and the main exemptions at PERG 8.

2.2 Assessing whether the Financial Promotion Restriction applies

Communicating a financial promotion in breach of section 21 is a criminal offence punishable by up to two years’ imprisonment and the imposition of an unlimited fine. Contracts arising from prohibited promotions risk being deemed unenforceable, and the customer may be entitled to recover loss incurred (including compensation). The FCA can order withdrawal of promotions or place firms on a warning list which could further cause reputational damage or impact business relationships. The FCA is taking a robust and proactive approach to monitoring financial promotions for compliance with the rules. It is therefore imperative to assess carefully whether the firm is caught by the restriction. Analysing the distinct parts of the Financial Promotion Restriction is key to determining whether it applies or not. It is important that legal and compliance teams are familiar with the control requirements and relevant staff have sufficient training and knowledge to identify the risks of breach when overseeing sign-off processes (eg, SYSC 4 ensuring there are appropriate systems and controls to manage risks) and record-keeping requirements.

2.2.1 What is an invitation or inducement?

The Financial Promotion Restriction relates to communicating (or causing the communication of) an ‘invitation or inducement’ to engage in investment activity. Neither ‘invitation’ nor ‘inducement’ is defined in FSMA, leaving each one to its natural meaning.

FCA guidance notes that there must be elements of persuasion, incitement or promotion both to the invitation and inducement. The FCA considers it appropriate to apply an objective test, ie, the essential elements must both have the purpose and intent to lead the person to engage in investment activity and be promotional in nature. Communications which are profile-raising (eg, branding on an umbrella) and which do not identify and promote a particular investment or investment services may not amount to either an invitation or an inducement. Purely factual information (eg, annual statements, complaints or general correspondence) is generally not caught.

An invitation is generally considered as a direct invitation to actively encourages someone to engage in investment activity eg, entering into a contract. For more detailed FCA guidance on what are considered invitations, please see PERG 8.4.5G. Examples of invitations include direct-offer financial promotions, a prospectus with application forms, and internet promotions by brokers where the response by the recipient will initiate the activity (eg, ‘register with us now and begin dealing online’). PERG 8.4.6G provides examples of where the FCA considers that an invitation will not have been made (eg, a professional adviser enquires whether their client would be willing to sign an agreement).

In PERG 8.4.7G, an inducement is described as a link in a chain where the chain is intended to lead ultimately to an agreement to engage in investment activity. Not all links in the chain will be an inducement and not every inducement will be one to engage in investment activity. Only those that are a significant step in persuading or inciting or seeking to persuade or incite a recipient to engage in investment activity will be inducements.

The fact that a communication may be made at a preliminary stage does not prevent that communication from being a significant step. However, in many cases a preliminary communication may simply be an inducement to contact the communicator to find out what he/she has to offer. See PERG 8.4.7G for an example of how this applies in practice.

2.2.2 Acting in the course of business

The Financial Promotion Restriction applies to any person who is not an authorised person, whether an individual or entity, if the communication is made ‘in the course of business’. Whilst the Treasury has the power to specify circumstances in which a person is viewed as acting in the course of business or not, to date it has not used this power. As a result, ‘acting in the course of business’ has its ordinary or natural meaning. FCA guidance notes there must be a commercial interest on the part of the communicator. This does not necessarily have to be a direct interest and can capture any level of commerciality. The business test can capture communications even where the communicator is not making the communication in the context of a direct commercial arrangement. It is intended to exclude genuine non-business communications (eg, personal communications between individuals). See PERG 8.5 provides scenario-based examples of how this is applied in practice. Chapters 4.16 – 4.27 of the finalised guidance provides useful examples of where the ‘in the course of business’ may apply in relation to influencers.

2.2.3 The requirement to communicate

The word ‘communicate’ is not defined, but under section 21(13), FSMA, ‘communicate’ includes actions which cause a communication to be made, which can extend the reach of communications beyond the original author. Any form of communication can be a financial promotion if it has a business element and invites or encourages investment activity.

For a communication to be a financial promotion a person must take some active step to make the communication (eg, give marketing material to engage in specific financial activity to the recipient) and any form of communication (including through social media) can be caught. This will be a question of fact in each case – see PERG 8.6.4G). It is worth noting however that primary responsibility for the communication remains with the originator (ie, the firm or person who has responsibility for its contents). Speaking at oral events (depending on the capacity of the speaker) as an individual or an employee will impact who will be held responsible.

The restriction on financial promotions applies to any form of communication whether written or oral. Communications can be ‘made to’ (ie, delivered to someone in particular, by email or telephone call) or ‘directed’ (eg, social media ads or broadcasts) at people generally. This distinction could impact the availability of exemptions (see PERG 8.6.9G and 8.6.10G and article 6, FPO).

Under the FPO, distinctions are drawn between communications that are real time and non-real time financial promotions. Real time financial promotions are then divided into solicited or unsolicited real time financial promotions. No distinction is made between solicited and unsolicited non-real time communications.

Real time and non-real time communications

Real time communications include personal visits, telephone calls or other interactive dialogue (article 7(1), FPO), whereas a non-real time communication is any other communication including letters, websites or emails (article 7(2), FPO). The key difference is the interaction between the parties, and in real time communications, there is interaction between the communicator and the recipient and real time communications cannot be pre-approved. See PERG 8.10 for FCA guidance as to the meaning of real time and non real-time . Firms are advised to implement careful monitoring and oversight policies and procedures particularly given the spontaneous nature of real time communications with a business element. This may include measures such as using approved sales scripts, providing staff with targeted training or conducting spot checks on client calls to ensure compliance.

Solicited and unsolicited communications

Article 8(1), FPO states that a real time financial promotion is solicited where it is made in the course of a personal visit, telephone conversation or other interactive dialogue which was initiated by or takes place in response to an express request from the recipient. An unsolicited real time financial promotion is any real time financial promotion which is not solicited, ie, initiated by the person making the communication rather than the investor (article 8(2), FPO).

Greater protection is afforded to consumers where the communication is unsolicited and made in real time. For such promotions, authorised firms are strictly limited giving the heightened risks to consumers. Guidance is set out in sector specific sourcebooks eg, COBS 4.8 (cold calls and other promotions that are not in writing), MCOB 3A.3.5 (prohibition on cold calls of qualifying credit, a home reversion plan or a regulated sale and rent back agreement), CONC 3.10 (financial promotions not in writing and FPCOB 4.2 (funeral plans).

Whether a financial promotion is solicited real-time or unsolicited real time or non-real time can have implications for the the availability of certain exemptions under the FPO eg, for solicited real time one-off communications (article 28A, FPO).

2.2.4 What does engaging in investment activity mean?

The Financial Promotion Restriction applies to communications of an ‘invitation or inducement’ to engage in investment activity. ‘Investment activity’ covers a wide variety of investments and includes any controlled activities or controlled investments. (See section 21(8), FSMA).

Controlled activities (such as accepting deposits and managing investments) and controlled investments (such as shares or units in a collective investment scheme and now also includes qualifying cryptoassets (see section 5.2 below) are defined in schedule I to the FPO (see Parts I and II) and are listed in PERG 8.36.3G. These are broadly similar to the list of regulated activities and specified investments set out in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (as amended) (RAO). However, it is possible for a person to be carrying on business in the UK for which authorisation is not required (eg, the activity is not regulated or falls within one of the exemptions in the RAO), but marketing communications in respect of that activity may still be caught by the Financial Promotion Restriction.

2.2.5 Territorial scope of financial promotion restriction

The Financial Promotion Restriction applies to any communication made in the UK, and any marketing that ‘is capable of having effect in the UK’ (see PERG 8.8), regardless of where the firm doing the marketing is based. What matters is whether the promotion is capable of having an impact in the UK.

What constitutes a financial promotion is broad and can include websites and social media targeted to UK consumers, irrespective of whether the firm is based in the UK or overseas. For further information, see How-to guide: Financial promotions and social media guidance.

Section 3 – Exemptions

3.1 Overview

Exemptions from the Financial Promotion Restriction are set out in the FPO, and are divided into three categories (not referencing controlled claims management activities):

exemptions applying to all controlled activities (part IV) – see guidance in PERG 8.12G;
exemptions applying to deposits and insurance (part V) – see guidance in PERG 8.13G; and
exemptions applying to certain controlled activities (part VI) – see guidance in PERG 8.14G.

Exemptions enable unauthorised individuals or businesses to communicate financial promotions in certain circumstances, including to defined groups or categories of individual investors, without requiring the approval of an authorised firm provided the criteria for the exemption are met. To rely on an exemption under the FPO the promoter must ensure that all the conditions of the exemption are satisfied.

It is outside the scope of this guide to consider all available exemptions.

3.2 Combining exemptions

Article 11, FPO (Combination of different exemptions) allows for certain exemptions to be combined when no single exemption applies. PERG 8.11.3G explains that relevant exemptions may be combined except where the conditions applicable to an exemption prevent this. PERG 8.11.4G provides examples of where it may not be practical to combine exemptions.

3.3 Exemptions for financial promotions targeted to high net worth and sophisticated investors

3.3.1 High net worth individuals (article 48, FPO)

Previously known as the ‘certified high net worth individual exemption’ this is now known as the ‘high net worth individuals exemption’ (HNWI). This exemption can only be used to market investments related to unlisted companies and is often used in capital raising from business angels for start-up and smaller companies allowing non-real time or solicited real time communications to persons who have self-certified they meet the prescribed criteria.

The HNWI applies to those who certify they have an annual income of at least £100,000 in the last financial year or hold net assets of at least £250,000 throughout the last financial year.

3.3.2 Sophisticated investors (article 50, FPO and article 50A, FPO)

Communications to sophisticated investors and self-certified sophisticated investors are exempt from the Financial Promotion Restriction in the ways listed below.

To be a sophisticated investor, the recipient of a financial promotion must have a certificate signed by an authorised person in the previous three years stating that they are sufficiently knowledgeable to understand the risks associated with the type of investment. The exemption applies to a broad range of investments. Communications to sophisticated investors must include investor warnings in line with article 50(3), FPO.
To self-certify as a sophisticated investor, you must meet one or more of the following criteria:
have made two or more investments in an unlisted company in the previous two years
have been a member of a business angels’ network or syndicate for at least six months; or
work, or have worked (in the past two years), in a professional capacity in private equity or in the provision of finance for small and medium enterprises; or
are, or have been in the preceding two years, a director of a company with an annual turnover of at least £1 million.

The FCA has issued a statement advising potential investors to exercise caution when investing in high-risk investments using these exemptions. The FCA highlighted unlisted loan notes and mini-bonds (often used to finance property developments) as particularly risky.

3.3.3 Investor statements

To help investors understand and engage with financial promotions, the format of the investor statements has been simplified and written in more consumer-friendly and accessible language. The key conditions are prominently displayed at the top of the form. Investors are also warned financial promotions made under these exemptions may not follow FCA rules and may not offer protections like those provided by the Financial Ombudsman Service or the Financial Services Compensation Scheme. In the updated forms, the prospective investor is required to select which criterion they meet to be classified as eg, HMWI and explain how they meet the requirements. For more information, please see the explanatory memorandum.

Section 4 – Approval process for financial promotions

4.1 Communication or approval by an authorised person

Under the current regime, financial promotions are not prohibited if they have been approved by a FCA or PRA authorised person (unless an exemption applies). An ‘authorised person’ is (primarily) a person who has a ‘Part 4A permission’ (defined in section 55A, FSMA) to carry on one or more regulated activities. An authorised person must not approve a real time financial promotion made in the course of a personal visit, telephone conversation or other interactive dialogue (COBS 4.10.4R).

Under section 21, FSMA, any firm that is authorised may approve a financial promotion by another unauthorised person. This is often referred to as ‘a section 21 approval.’ Authorised firms approving financial promotions are required to comply with the financial promotion rules within the FCA Handbook, ie, that financial promotions are clear, fair and not misleading and either:

promoted by an authorised firm;
approved by an authorised firm (with appropriate permissions – see section 4.2); or
benefit from an exemption.

See also rules and non-Handbook guidance strengthening financial promotion rules for high-risk investments and firms approving financial promotions in PS22/10.

4.2 Regulatory gateway for financial promotions

The regulatory gateway was introduced to strengthen oversight of financial promotions by unauthorised firms and came into effect on 7 February 2024. Under the gateway, authorised firms must now apply to the FCA for permission if they that wish to approve the financial promotions of unauthorised firms (subject to certain exemptions). Firms that apply must demonstrate they understand the products being promoted and have systems and controls and procedures in place to monitor and withdraw approvals (if required). Assessment at the gateway will give the FCA greater oversight of firms’ suitability, expertise and competence to approve financial promotions. Firms making the application will need to consider the individuals involved in reviewing and approving promotions understand the financial promotion requirements to identify key risks. The FCA hopes this additional level of scrutiny will ensure firms approve promotions to the right standard so that consumers receive high-quality financial promotions.

See PERG 8.9 and Checklist: Key checks for firms to consider when approving financial promotions.

4.2.1 Exemptions

Exemptions from the gateway requirements include the following:

financial promotions prepared by unauthorised persons within the same corporate group as the authorised person;
the approval of authorised firms’ own promotions for onward communication by an unauthorised firm; and
financial promotions prepared by their appointed representatives, in relation to regulated activities, for which the principal (authorised person) has agreed to accept responsibility.

4.2.2 Next steps

Firms that have made an application to the FCA will be able to continue approving financial promotions for unauthorised persons while their application is determined by the FCA. To apply, authorised firms are required to submit a variation of permission (VOP) to the FCA. See How-to guide: Preparing an application to vary a Part 4A permission at the request of a firm. Firms will need to specify on their application, among other things, product types they want to approve financial promotions for.

As of 7 February 2024, firms which have not applied for permission during the initial period will no longer be able to approve financial promotions for unauthorised persons (subject to exemptions). If they want to approve financial promotions in the future, they can apply using VOP in the usual way.

Specific reporting requirements for firms that have obtained approver permission and how the FCA will operationalise the gateway is detailed in PS23/13. Firms must also consider their responsibility under the Consumer Duty (see 5.1) when approving financial promotions to ensure customers are suitably informed and understand communications to make the right investment decisions. Governance of all these processes is crucial and firms must ensure they document their process for approving promotions and keep records of all decisions taken.

Section 5 - Developments to note

5.1 Consumer Duty

Since 31 July 2023, the Consumer Duty (Duty) applies to all new products and services, and all existing products or services that remain on sale or open for renewal.

This was extended to all closed products and services from 31 July 2024. Some limited exclusions from the application of the Consumer Duty apply. It sets higher standards of consumer protection across financial services in retail financial markets (which captures a manufacturer of a product marketed and sold to retail customers). This extends to financial promotions and in-scope firms are expected to adopt marketing strategies to deliver good outcomes for retail consumers (see Principle 12 and PRIN 2A). There are four key outcomes for firms to comply with:

products and services
price and value
consumer understanding
consumer support

Firms can support customer understanding by:

providing timely and clear information ensuring customers have the information they need to make good financial decisions about products and services; and
tailoring communications to the diverse needs of customers (including any vulnerable customers), the complexity of the products, the communication channel used and the role of the firm. See Chapter 2 of the Finalised Guidance for how the Duty applies across the distribution chain.

The Duty sets out rules for firms and requires firms to consider the needs, characteristics and objectives of customers, including those with vulnerability.

For further information, see How-to guide: The FCA’s Consumer Duty: putting the needs of customers first and Checklist: Embedding the Consumer Duty: practical considerations.

5.2 Financial promotion of cryptoassets

In November 2023, the FCA published final non-handbook guidance on cryptoasset financial promotions. This followed the implementation of the Financial Services and Markets Act 2000 (Financial Promotion) (Amendment) Order 2023 (FPAO) which amended the FPO to bring ‘qualifying cryptoassets’ within scope of the UK’s financial promotion regime from 8 October 2023.

The rules apply to financial promotions relating to dealing, arranging, managing or advising in relation to qualifying cryptoassets, which are made in the course of business to UK customers regardless of whether the firm is based overseas or what technology is used to make the promotion. See PS23/6 – Financial promotion rules for cryptoassets. P

A ‘qualifying cryptoasset’ for these purposes is any cryptographically secured digital representation of value or contractual rights that can be transferred, stored or traded electronically, and uses technology supporting the recording or storage of data (which may include distributed ledger technology), that is both fungible (ie, can be traded at an agreed-upon price) and transferable. Certain cryptoassets are excluded eg, electronic money, existing controlled investments or digitally issued fiat currency (eg, central bank digital currencies).

The FCA rules for high-risk investments PS22/10PS22/10) may also apply (where cryptoassets are categorised as a particular type of high-risk investment) meaning that additional rules apply, including:

prescribed risk warnings and risk summaries (to advise consumers of the risks of investing),
bans on incentives to invest (eg, a refer a friend bonuses),
stricter rules for direct offer financial promotions (ie, where a form of response is included) such asa 24-hour ‘cooling off’ period for first-time investors, client categorisation, appropriateness assessments and record-keeping requirements.
communicated by an authorised person; or
made by an unauthorised person but approved by an authorised person (see section 4 above); or
communicated by (or on behalf of) a cryptoasset business (ie, as a cryptoasset exchange provider or custodian wallet provider) registered with the FCA under the Money Laundering Regulations. This is a temporary bespoke exemption in article 73ZA, FPO.
in accordance with specific FPO exemptions.

Firms must undertake due diligence on the cryptoassets or cryptoasset services being promoted to ensure promotions enable investors to make informed decisions, considerations around the Consumer Duty apply when targeting retail customers, and adverts must be fair, clear and not misleading (COBS 4).

Four routes are available to legally promote cryptoassets in the UK – see FCA letter on cryptoasset firms marketing to UK consumers.

This is provided the promotion is:

communicated by an authorised person; or
made by an unauthorised person but approved by an authorised person (see section 4 above); or
communicated by (or on behalf of) a cryptoasset business (ie, as a cryptoasset exchange provider or custodian wallet provider) registered with the FCA under the Money Laundering Regulations. This is a temporary bespoke exemption in article 73ZA, FPO.
in accordance with specific FPO exemptions.

The Financial Promotion Restriction will apply to all firms marketing cryptoassets to UK consumers regardless of where the firm is based or what technology is used in the financial promotion. It will be important to understand the characteristics of the particular cryptoasset to determine whether it will be caught. Existing exemptions in the FPO will generally apply to promotions of cryptoassets; however, certain exemptions do not apply eg, the HNWI (article 48) and the self-certified sophisticated investor (article 50A) exemptions. This is because these particular exemptions only apply to promotions related to a specific set of investments, broadly investments related to unlisted securities.

Please see Quick views: The financial promotion regime and marketing of cryptoassets and Proposals for the future regulation of cryptoassets.