Financial promotions regime: recent changes and common breaches
The financial promotions regime — governed primarily by Section 21 FSMA 2000, the Financial Promotions Order 2005, and the FCA's COBS 4 rules — has undergone significant changes since 2022. The cumulative effect of amendments to the Financial Promotions Order (including extensions to cover qualifying cryptoassets and new high-risk investment categories), updates to COBS 4 risk warning requirements, and the introduction of the Consumer Duty has created a materially more demanding compliance environment for firms that communicate financial promotions to retail consumers.
The high-risk investment rules, introduced in stages from December 2022, require firms promoting non-mainstream pooled investments and speculative illiquid securities to comply with enhanced disclosure requirements, to undertake appropriateness assessments before accepting retail investor applications, and to implement friction mechanisms (including 24-hour cooling-off periods and positive opt-in confirmations) designed to slow down impulsive investment decisions. The FCA's post-implementation review found widespread non-compliance, particularly among firms using social media and influencer marketing channels where the friction requirements are technically challenging to implement.
Common breaches identified in the FCA's financial promotions monitoring include: failure to include mandatory risk warnings in the correct format and prominence; use of past performance data without the required caveats; unbalanced presentations that emphasise returns without adequate risk disclosure; failure to identify promotions directed at retail consumers as such; and failure to ensure that promotions approved under Section 21 FSMA were reviewed and refreshed at appropriate intervals. The FCA has expanded its use of online monitoring tools and has issued increasingly large numbers of alerts about non-compliant promotions, including against FCA-authorised firms as well as unauthorised entities.
The s.21 approval regime — under which authorised firms can approve promotions on behalf of unauthorised persons — has been tightened. Following the FCA's PS23/13, authorised approvers must now comply with enhanced gateway conditions, including an obligation to assess whether they have the relevant expertise to approve a particular type of promotion, and an obligation to maintain ongoing monitoring of approved promotions. Firms acting as approvers must review their compliance frameworks against these requirements and ensure that their approval process is documented, resourced, and subject to appropriate governance oversight.
Social media and influencer marketing
The FCA's guidance on social media financial promotions (FG24/1, published March 2024) clarifies that all financial promotions communicated via social media platforms must comply with the full requirements of the regime, including risk warnings, irrespective of the character limits or format constraints of the platform. Firms using influencers or affiliate marketing arrangements must ensure that the underlying promotion has been approved by an authorised firm and that the influencer understands their obligations. The FCA has indicated that it regards the use of non-compliant influencer marketing as a significant consumer harm issue and will take action against both the influencer and the underlying firm where appropriate.