FCA Chair calls for review of financial promotions regime

Charles Randell, Chair of the UK Financial Conduct Authority (FCA), has called for review of the UK financial promotions regime.

The financial promotions regime is ripe for re-examination, he said in a speech delivered on September 4, 2019. Approving financial promotions is not a regulated activity although only FCA authorised firms may do it. However, for that, they do not have to have any special qualifications or permissions, Mr Randell explained. These firms do not have to report to the FCA on the promotions they approve.

The rubric which appears on financial promotions – such as ‘capital at risk’ – does not help investors distinguish between a low cost, lower risk diversified listed equity fund and a high cost, much higher risk minibond. This is yet another area which deepens confusion about the scope of FCA regulation, he warned.

According to Mr Randell, a well-functioning financial promotions regime would label a high-risk unquoted and unregulated investment as exactly that, and say clearly that this is not the right investment for all of one’s life savings.

“And phrases like ‘secured’ or ‘asset-backed’ could be banned; they are often highly misleading since the so-called security or asset-backing can be worthless”, Charles Randell says.

But unless the issue or approval of financial promotions is made a regulated activity, with only appropriately qualified and governed authorised firms permitted to do this, with clear standards for issue or approval of the promotion, and with adequate reporting to and supervision by the FCA, the financial promotions regime may not provide much better protection than it does at present – which is not enough, Mr Randell stressed.

Since the start of 2019, the FCA has sent two “Dear CEO” letters, dedicated to financial promotions. The one sent in April focused on promotions of products like mini-bonds. Although the regulator does not mention London Capital & Finance in the letter, one might guess that the content of the letter and the clear stress put on promotions of mini-bonds have been influenced by LC&F’s collapse and the public pressure to investigate the issue.

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 it expects. Even when investment products are not regulated or are issued by companies that are not FCA-authorised, should a firm provide a ‘s21 approval’ of their promotion, it can expect the FCA to require the firm to demonstrate that it has carried out such due diligence to ensure that the promotion is fair, clear and not misleading.