The FCA has written again to regulated firms about how seriously it treats misleading financial promotions of retail investments for unauthorised issuers. In a Dear CEO letter issued in April, FCA chief executive Andrew Bailey said that despite the FCA’s earlier letter from 9 January 2019, the regulator has identified a number of examples “where it appears the due diligence carried out on a financial promotion may have fallen well short of the standard we expect.”
What do you need to do?
Review of the letter reveals a number of key points which we have set down below.
- Even when investment products are not regulated (such as mini-bonds) or are issued by companies that are not FCA-authorised, should a firm provide a ‘section 21 approval’ of the promotion, it can expect the FCA to require the firm to demonstrate that it has carried out due diligence to ensure that the promotion is fair, clear and not misleading.
- Direct offer financial promotion of mini-bonds and other unlisted securities to retail clients is generally restricted to high net worth investors, sophisticated investors or “restricted investors” who have certified that they are not investing more than 10% of their net assets in non-readily realisable securities. It is the responsibility of the firm that communicates or approves the direct offer financial promotion to ensure that this restriction and the rules on the appropriateness of the investment are complied with.
- Where the FCA observes non-compliance with the requirements by firms which approved promotions, it will take action. It can take a range of measures, which can result in the amendment or removal of financial promotions, the suspension or cancellation of planned issuance of these products to investors, formal limitations being placed on the activities of the firms which approved non-compliant promotion, and the FCA bringing civil or criminal proceedings.
- Should the FCA identify concerns with the due diligence performed, firms can expect the FCA to examine what governance and oversight failures may have contributed to this and to assess who within the firm is responsible. They can also expect the FCA to assess what steps the firm had taken to review financial promotions it has previously approved, and to what extent the firm has self-identified and reported issues with those promotions or with promotions it has declined to approve.
How can Thistle help you?
If you are concerned about this update or about potential FCA enforcement action, please get in contact for an initial chat to see how we can assist in becoming compliant. We can review your current governance and due diligence systems or advise you on how to correctly disclose financial projections or the risk disclosures that you will need to make in your promotions.
We can provide a full range of compliance services, including help with FCA or PRA authorisation and variations of permission, advice on how to improve your systems and controls, past business and complaint handling reviews, remedial solutions, online and tailored compliance training, regulatory reporting assistance, MiFID II and CASS auditing, policy and procedure suites, skilled person project assistance and call and transaction monitoring.