Welcome back!

Hoping you enjoyed your summer break and are feeling energised for the rest of the year ahead.

You’ll certainly need to be – two recent Policy Statements issued by FCA in July and August mean that there’s plenty to do for the rest of the year – particularly if you have retail clients within your permission scope.

A demotion of promotion

We initially drew your attention to FCA proposals for new rules on promotions in our February Newsletter. We said then that the proposed new rules would “require extensive re-engineering of firm’s promotional processes, websites, printed material and investor on-boarding processes.”

The final rules were published this August in FCA PS 22-100 “Strengthening our financial promotion rules for high-risk investments and firms approving financial promotions” with an implementation date of 1 December 2022 for all in-scope products. This includes non-mainstream pooled investments – i.e. units in unregulated funds.

And there is certainly much for firms to do before that date:

• all promotions will now have to include FCA prescribed risk warnings and separate risk summaries. FCA has further specified how these should be made prominent;
• firms used to giving investors “incentives” (FCA quotes “refer a friend and new investor” discounts) will no longer be able to make these offers;
• first-time investors will need to receive a risk summary prior to receipt of a promotion, and then be allowed to benefit from a 24hr cooling off period;
• applicants applying as “high net worth” or “sophisticated” investors will need to state in their application how or why they meet the criteria of that category.

All of the above will require extensive re-writing of firm’s hard copy and electronic literature, including web sites and other social media channels and consequent liaison between compliance, IT and marketing teams.

Fulcrum Compliance has already provided clients with summary extracts from the FCA Policy Statement to enable them to start this process.

Consumer Duty – PS 22-9

Although FCA’s Policy Statement 22-9 “A new Consumer Duty” is not due for implementation until 31 July 2023, it represents a complete overhaul of the existing retail client regime. Every firm which has a retail client permission or whose products / services could impact retail will be affected.

Firms will be subject to a new duty to “act to deliver good outcomes for retail clients”. This duty is explained and defined by separate cross-cutting rules, consumer

outcomes and guidance as set out in the separate FG 22-5 “Final non-Handbook Guidance for firms on the Consumer Duty”. There’s no need to consider what “good outcomes” might look like. You get good outcomes when you follow the guidance.

There are provisions for reasonableness and proportionality. The firm’s implementation will depend on its role in the retail process, the client’s characteristics, and the product / service in question. The less contact the firm has with retail, the lower the burden for the firm.

And it’s also clear that the duty does not absolve the client from all responsibility. FCA make clear that the client is not protected from all harms and is not protected from risks they have understood and accepted.

That said, the firm must adhere to the cross-cutting rules: to act in good faith, avoid causing foreseeable harm and to support retail customers to pursue their financial objectives. But the real detail of this PS lies in the consumer outcomes which the FCA wishes to see, and the related guidance which gives examples of how these might be achieved. These include specific requirements for:

• products and services;
• price & value;
• customer understanding;
• consumer support.

Overlaying all of this is a governance requirement for the firm. FCA suggests information which the Board may wish to see in order to assist it in complying with the duty. There is to be a Board level Champion for the duty, who will make an annual report to the Board.

Fulcrum Compliance believe that a bottom-up approach to this new duty is essential. You can only judge whether you’re adhering to the high-level duty if you first look at the low-level guidance. If you’re complying with the guidance, you’re likely to be complying with the outcomes. If you’re complying with the outcomes, you’re likely to be complying with the cross-cutting rules and the duty.

Fulcrum Compliance has already issued its most affected clients with a Gap Analysis Template, based on FCA’s previous Consultation Paper. We will be updating this in the light of the PS and re-issuing it to clients. We plan to issue a further Newsletter on the guidance in FG 22-5.

Whilst the 31 July 2023 may seem a way off, October 2022 is just around the corner. This is the date by when Boards need to have considered and approved their implementation plans. So be prepared for a call from FCA in Q4 asking what you’ve done – and be ready with an answer.