On 6th November 2023 the application period for authorised persons which wish to continue approving financial promotions on behalf of unauthorised third parties commences. An authorised person that wishes to engage in this activity will be known as a “Section 21 approver”.
The purpose of this article is to summarise the key features of the gateway and what is involved in making an application to the Financial Conduct Authority (“FCA”).
Do all firms who are currently authorised by the FCA have to apply to the gateway?
In short, no.
If your firm is currently authorised and only wants to approve:
- its own promotions;
- promotions to be distributed by its appointed representatives; or
- the promotions of unregulated entities in its corporate group
then it will not need to become a Section 21 approver. This is because of an exemption in The Financial Services and Markets Act 2000 (Exemptions from Financial Promotion General Requirement) Regulations 2023.
Ok, we would like to continue approving financial promotions on behalf of third parties that have not been authorised by the FCA. What do we need to do next?
You will need to submit a variation of permission application to become a Section 21 approver in the FCA’s Connect portal.
How will the FCA assess applications at the gateway?
The FCA will assess whether the applicant:
- has assessed the risks posed by becoming a Section 21 approver, particularly in view of the likely volume of promotions that will require approval in proportion to the revenue that would be generated from this activity;
- has demonstrable knowledge and experience of the products and services that will be the subject of the financial promotions that it wishes to approve;
- is sufficiently resourced, not only to approve promotions, but to monitor the continued compliance of a promotion with the FCA’s rules thereafter;
- has adequate systems and controls to:
- scrutinise the commercial viability of the propositions to be promoted;
- ensure that promotions comply with the FCA’s rules;
- keep records of any promotions approved;
- withdraw promotions if necessary;
- submit notifications to the FCA:
- to comply with bi-annual reporting requirements;
- if it intends to start or cease approving financial promotions that are subject to marketing restrictions; and
- or where it suspects criminal activity or otherwise has concerns about a product that a third party is seeking to promote.
How much will it cost to make an application to the gateway?
£5,000.
What is the timeline for the consideration of applications?
The FCA has 6 months to consider a complete application, rising to 12 months for an incomplete application.
The application period begins on the 6th November and closes on 6th February 2024.
If a firm has not applied during the application period it will not be able to benefit from the transition period to continue approving financial promotions on behalf of third parties which runs until the FCA has made a decision about a firm’s application to become a Section 21 approver. The “case by case” transition period begins on 7th February 2024.
The notification and reporting requirements commence from 7th February 2024.
What are the potential outcomes of the application process?
The FCA could:
- approve the application as submitted;
- approve the application, but for a narrower range of products than the applicant applied for; or
- reject the application. In this case, the applicant would have to cease engaging in Section 21 approver activities forthwith.
How will the gateway dovetail with the Consumer Duty?
The financial promotions gateway will dovetail with the Consumer Duty in several important respects. Section 21 approvers will need to check that financial promotions they issue aid consumer understanding. This will need to consider the complexity of the products to be promoted, potential vulnerabilities in the target market and the methods of communication that will be used, e.g. print, social media or website.
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