Legal Shorts 29.11.19 including FCA webpage on approving unauthorised persons’ financial promotions

FCA webpage on approving unauthorised persons’ financial promotions

The FCA has published a new webpage setting out guidance on approving financial promotions for unauthorised persons. Firms which approve financial promotions are already required to ensure that those promotions comply with FCA rules, both in presentation and in substance. The guidance explains some practical implications of the existing requirements, rather than setting out new standards.

You can access the webpage here but we summarise some of the salient points below.

Ensuring that a promotion is fair, clear and not misleading

  • before a firm approves a financial promotion for communication by an unauthorised person, it must confirm that the financial promotion complies with FCA financial promotion rules;.
  • all financial promotions must be fair, clear and not misleading. This means that you must not approve the content of a financial promotion for communication by an unauthorised person, unless you are satisfied that the promotion is fair, clear and not misleading; and
  • when assessing whether a promotion is fair, clear and not misleading, firms may need to consider (among other things): the authenticity and commercial viability of the proposition described in the relevant promotion and the commercial viability of the proposition described in the promotion.

Ensuring that a promotion complies with the financial promotion rules

A firm approving a financial promotion must confirm that the promotion complies with all applicable financial promotion rules. In particular, a financial promotion that is likely to be received by a retail client must give a fair and prominent indication of relevant risks when referencing potential benefits. On the need to ensure that risk warnings are afforded sufficient prominence within financial promotions firms should form their own view of the risks associated with an investment in order to confirm that this requirement is satisfied (ie, that the promotion gives sufficient prominence to all relevant risks).

FCA to ban promotion of speculative mini-bonds to retail consumers

On 26 November 2019, the FCA is introducing the ban on promotion of speculative mini-bonds to retail consumers, without consultation, using its product intervention powers. The restriction will come into force on the 1 January 2020 and last for 12 months while the FCA consults on making permanent rules.

The term mini-bond refers to a range of investments. The ban will apply to more complex and opaque arrangements where the funds raised are used to lend to a third party, invest in other companies or purchase or develop properties. There are various exemptions including for listed mini-bonds, companies which raise funds for their own activities (other than the ones above) or to fund a single UK property investment.

The FCA has limited powers over the, usually unauthorised, issuers of speculative mini-bonds but can take action when an authorised firm approves or communicates a financial promotion, or directly advises on or sells, these products. Alongside this activity, there is evidence of a growing incidence of promotions which are frauds or scams and involve no attempt to meet financial promotion rules. The marketing ban does not apply to such frauds and scams because they are illegal in any event.

The FCA ban will mean that unlisted speculative mini-bonds can only be promoted to investors that firms know are sophisticated or high net worth. Marketing material produced or approved by an authorised firm will also have to include a specific risk warning and disclose any costs or payments to third parties that are deducted from the money raised from investors.

Firms which approve financial promotions are already required to ensure that those promotions comply with FCA rules. The FCA has today also published guidance on the requirements on firms when approving the financial promotions of unauthorised persons. The FCA believes that many promotions still fall short of existing requirements and firms which approve the financial promotions of unauthorised persons may not be taking adequate steps to ensure that they comply with our rules before approving them.

The FCA also intends to launch a communications campaign to improve consumer awareness of risks and to inform consumers about what they should consider before investing in high-risk investments. The FCA continues to work with HM Treasury on its review into the regulatory framework for the issuance of non-transferable debt securities (NTDS).

PRA fines Citigroup’s UK operations £44 million

The PRA issued a final notice dated 26 November 2019 to Citigroup Global Markets Ltd, Citibank NA London branch and Citibank Europe plc UK branch, collectively fining the Citi UK operations £43,890,000 for failings in their regulatory reporting governance and controls.

The PRA’s investigation focused on CGML’s capital and leverage returns, CGML’s liquidity returns and CEP UK and CBNA London’s branch returns. Between June 2014 and December 2018, the firms’ UK regulatory reporting framework was not designed, implemented or operating effectively, which led to them failing to submit complete and accurate regulatory returns to the PRA. These failings occurred over a significant length of time, were serious and widespread in nature and led to significant errors in the firms’ returns and included, amongst other things:

  • a failure to ensure systems and controls supporting its UK regulatory reporting framework were designed, implemented and operating effectively; and
  • a failure to allocate adequate human resources to ensure CGML’s liquidity returns were complete and accurate.

The PRA also held that Citi’s oversight and governance in relation to regulatory reporting fell significantly below the standards expected of a global systemically important bank – this was the PRA’s first case against a category 1 PRA-regulated firm for failures in its regulatory reporting systems, controls and governance arrangements.

FCA secures confiscation order against convicted fraudster

On 27 November 2019, the FCA obtained a confiscation order of £291,070.36 against Mark Barry Starling in Southwark Crown Court. The confiscation order follows the FCA prosecution in which Mr Starling was sentenced to 5 years’ imprisonment for defrauding investors of just under £3m in relation to unauthorised investment schemes he operated between 2008 and 2017.

Mark Steward, Executive Director of Enforcement and Market Oversight at the FCA, said:

‘The FCA will continue to take steps to ensure that proceeds of criminal activity are confiscated from the criminals we prosecute so that victims can be compensated as far as possible.’

The Court found that Mr Starling had derived a benefit of £3,010,982.18 from his criminal conduct, but that the total realisable assets for confiscation was £291,070.36. Mr Starling had spent the rest of the victims’ monies maintaining his comfortable lifestyle. The monies will be used to compensate the 14 victims of his crimes who lost around £1.8 million in total. If he fails to pay the sums due under the confiscation order on time, he is liable to spend a further 2.5 years in prison.