The Financial Conduct Authority (FCA) is proposing additional measures and checks for firms that want to approve financial promotions.
The move comes hand-in-hand with recent changes to the Financial Services and Markets Bill (FSMB), which will require companies to receive permission from the regulator before they can approve any marketing of financial products. At the same time, the FCA is looking to introduce a £5,000 ($6,130, €5,815) fee for the processing of promotion applications.
The latest proposals would introduce checks for companies looking to approve financial promotions, as well as require them to demonstrate they have the right expertise for the marketing they wish to greenlight.
The watchdog said that this will help it clamp down on “illegal, unfair or misleading financial marketing”.
Under current legislation, any FCA authorised business can approve financial promotions on behalf of unauthorised companies. But changes being introduced in the UK parliament will see authorised firms being subject to additional screening checks before they are able to do so. The proposals will give the regulator greater oversight to stop consumer harm “before it occurs”.
Authorised companies will also be required to regularly report to the FCA on the promotions they have approved, in a bid to crack down on rogue promoters and adverts.
Between July and September 2022 alone, the watchdog intervened to amend or withdraw financial promotions 4,151 times – the highest level since it started publishing its data.
Sarah Pritchard, executive director for markets at the FCA, said: “Social media and online advertising means that consumers are taking less time between seeing a promotion and making a financial decision. It is, therefore, essential that they are equipped with the right information at the right time so that they can make good financial decisions. This is especially important as we face the rising cost of living.
“These proposals will ensure those approving ads have the appropriate expertise and are held accountable for the promotions they sign off.”
‘Timely’ move but small scope
Laura Suter, head of personal finance at AJ Bell, added: “The regulator is turning up the heat on influencers touting investment schemes, crypto platforms or other trading schemes. The FCA is aiming to make it harder for adverts and promotions to be approved, in a bid to stop people handing over their cash for investment schemes based on inaccurate social media posts.
“The FCA has been slow to move on tackling the huge number of social media posts luring people into investing in high-risk schemes or crypto trading without stating the real risks involved. Its latest move is to have more oversight of the adverts and promotions that are put out to advertise all manner of investments.
“Alongside this the regulator wants to squeeze the ‘Buy Now Pay Later’ (BNPL) market and ensure that people fully understand the risks of using the products. Currently many people using BNPL aren’t aware that it’s even debt or the impact that missing payments will have – and the FCA wants these points made much clearer on the marketing material.
“It’s timely that the regulator is putting this out now. During the cost of living crunch and expected recession it’s inevitable that more people will turn to alternative forms of debt, such as Buy Now Pay Later, and it’s crucial they go in with their eyes open to the risks involved. On top of that, when money is tight more people will be drawn into high-risk investment schemes, or even outright scams, with the promise of high returns being too much of a draw to resist for many cash-strapped people.
“However, the scope of the FCA only goes so far. The changes it is making will do little to stop outright scammers who lure people in through social media with promises of high returns from investments only to steal all their money. It also can’t do much about the mini-bond sector, as it doesn’t regulate these ‘non-transferable securities’.”