FCA clamps down on Financial Promotion Rules

As a highly regulated sector, complying with UK Financial Regulations can be a difficult task. The primary piece of regulation is the Financial Services and Markets Act 2000 (“FSMA”), with non-compliance having the potential to result in criminal proceedings.

Ellis Jones have recently carried out regulatory work in this area by providing practical advice and solutions relating to the Financial Services and Markets Act 2000 (Promotion) Order 2005/1529 (the “FPO”), and more specifically the application of various exemptions. In this article we outline the basic legal concepts surrounding this area, and how we may be able to help your business.

The General Prohibition

The prohibition imposed by Section 19 of the FSMA, states that no person may carry on a regulated activity in the UK, or purport to do so, unless that person is an authorised person or an exempt person. Regulated activities are defined in the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001/544.

The Financial Promotion Restriction

Section 21 of the FSMA provides that a person must not, in the course of business, communicate an invitation or inducement to engage in investment activity or to engage in claims management activity unless the promotion has been made or approved by an authorised person or it is exempt. The scope of the Financial Promotion Restriction is mainly set out in the FPO.

The Financial Promotion Restriction is extremely broad, meaning it is easy for communications to fall within its scope, sometimes without communicators’ knowledge.

Exemptions

The Financial Promotion Restriction has numerous exemptions which give communicators the ability to make communications which would otherwise be prohibited. These exemptions are subject to various conditions which communicators must adhere to.

Adhering to regulations

While the FPO details what is required for compliance with the FPO and any exemptions, from a practical perspective the FCA dictates whether a communicator is adhering to the legislation. Generally speaking, we would advise that businesses take maximum precautions to avoid scrutiny and potential aggressive action from the FCA, and in doing so, they should consult legal or financial experts to assist with this.

It is important to note that the Financial Conduct Authority (“FCA”) regularly targets business’ if they are believed to not be adhering to regulations correctly. Business’ should be mindful that the FCA has a wide range of powers, including:

• The power to bring criminal prosecutions for breaches of the General Prohibition and the Financial Promotion Restriction;
• The power to wind up companies for breaches of FSMA or on the just and equitable ground; and
• The power to seek damages from directors who are knowingly concerned in the activities of the business in question.

How can Ellis Jones assist?

Ellis Jones has a specialist Banking & Finance Litigation team, capable of giving commercially focused advice in relation to FSMA and the PFO, among other areas. We provide tailored advice on the following:

• Whether your website or other communications comply with the relevant legislation;
• Whether your communications fall under any of the relevant exemptions; and
• In the event of possible non-compliance, practical advice on how to amend your offering.

If you feel that you or your company could benefit from regulatory advice or guidance in relation to Financial Promotions or any other matters relating to Financial Regulation in the UK, then please do not hesitate to contact our experts on 01202 525333.