The FCA is considering what changes it should make to its financial promotion rules to help retail investors make more effective decisions (see DP21/1).  

Although the FCA recognises that higher‑risk investments can have a place in a well‑functioning consumer investment market for those consumers who understand the risks and who can absorb potential losses, they have put forward proposals which could have a significant impact on the business models for certain firms. These proposals are unsurprising, given the harm seen recently in the retail investment market. For example, the losses suffered by investors following the collapse of London Capital and Finance, mass-marketing of high risk products which are unsuitable, and abuse of the financial promotions exemptions by unauthorised firms.

The FCA proposals have the potential to make the customer investment journey - particularly where it is online - burdensome and potentially unattractive to investors. Firms that approve financial promotions for unauthorised persons should also expect enhanced regulatory obligations.

Next steps

The consultation closed on 1 July 2021. The FCA intends to test its proposals using behavioural research to obtain better insight on the effectiveness of the measures. It plans to consult on rule changes later this year.

The FCA will also publish a full response to the call for input, together with the next steps, in its wider consumer investment strategy and a second summary of its work to tackle harm in the consumer investment market.

The proposals relating to the FCA ‘gateway’ for authorised firms that approve financial promotions for communication by unauthorised persons (section 21 approvers) will require a change in legislation. We understand that the Government intends to bring forward the relevant legislation when parliamentary time allows. The FCA has also said that it intends to consult on its proposals for implementing the gateway in due course.