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Businesses relying on exemptions for high net worth individuals and self-certified sophisticated investors should ensure they are prepared to comply with the updated requirements.

By Rob Moulton, Nicola Higgs, and Charlotte Collins

On 7 November 2023, HM Treasury published the response to its consultation on reforming the financial promotion exemptions for high net worth individuals and self-certified sophisticated investors. These exemptions are set out in Articles 48 and 50A of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the FPO), respectively. They enable financial promotions for unlisted companies to be made to individuals who satisfy the relevant conditions, and were originally designed to assist unlisted companies with raising capital.

HM Treasury and the FCA are concerned that the exemptions, which have not been updated since 2005, are outdated as the financial thresholds have not been raised. This has meant that more individuals have been able to qualify for the exemptions. HM Treasury and the FCA have also been concerned that some businesses have been inappropriately using the exemptions to market investments to ordinary retail investors, including by coaching individuals to self-certify.

A new publication from the UK’s financial regulator signals to firms that they should take steps to manage risks in the use of AI.

By Stuart Davis, Fiona M. Maclean, Gabriel Lakeman, and Imaan Nazir

The UK’s Financial Conduct Authority (FCA) has published its latest board minutes highlighting its increasing focus on artificial intelligence (AI), in which it “raised the question of how one could ‘foresee harm’ (under the new Consumer Duty), and also give customers appropriate disclosure, in the context of the operation of AI”. This publication indicates that AI continues to be a key area of attention within the FCA. It also demonstrates that the FCA believes its existing powers and rules already impose substantive requirements on regulated firms considering deploying AI in their services.

Regulator clarifies that existing FCA rules will continue to apply but will also reflect the evolving landscape of financial promotions on social media.

By Nicola Higgs, Stuart Davis, Fiona Maclean, Gabriel Lakeman, and Gary Whitehead

On 17 July 2023, the FCA published a guidance consultation (GC23/2) relating to financial promotions on social media.

Acknowledging that social media is “being used by many consumer as a go-to source of information”, the FCA is updating its existing guidance on social media and customer communications to take into account the changing landscape of social media. The existing guidance, FG15/4: Social Media and Customer Communications, will be retired once the new guidance is finalised.

The regulator described the steps it is taking to increase scrutiny of advertisements about financial products and services on social media platforms.

By Rob Moulton, Jonathan Ritson-Candler, and Sara Sayma

On 3 February 2023 the FCA published an analysis of its financial promotions data for 2022. The data reflects the action taken against authorised firms for breaching financial promotion rules and referrals and investigations into unregulated activity over the last year. As part of its analysis, the FCA emphasised the link between good quality marketing information and good consumer outcomes.

HM Treasury has confirmed that it will bring certain unregulated cryptoassets within scope of the financial promotions regime.

By Stuart Davis, Rob Moulton, and Charlotte Collins

On 18 January 2022, the UK government confirmed its intention to bring the promotion of certain cryptoassets into scope of regulation. HM Treasury has been considering for some time whether, and if so how, to bring unregulated cryptoassets within the regulatory perimeter, having originally consulted on these proposals in 2020.

This annual publication outlines some of the primary focus areas in 2022 for UK-regulated financial services firms. There has been a marked shift away from dealing with immediate post-Brexit priorities to more fundamental consideration of the direction of travel of UK financial services regulation, and this is borne out across many of the topics covered in this year’s publication.

While monitoring regulatory divergence between the UK and the EU will be a key theme for 2022, other familiar topics will…

Discussion Paper opens debate on potential new rules to improve diversity in financial services.

By Rob Moulton, David Berman, Paul Davies, and Charlotte Collins

On 7 July 2021, the FCA, the PRA, and the Bank of England published a joint Discussion Paper on diversity and inclusion in the financial sector. The regulators, in particular the FCA, have been focused on diversity and inclusion as regulatory issues for some time. According to the regulators, research shows there is a positive correlation between increased diversity and inclusion and better outcomes in risk management, conduct, culture, and innovation. Therefore, improving diversity and inclusion in financial services is seen as tying in closely with the regulators’ objectives. In the Discussion Paper, the regulators consider diversity and inclusion not only in terms of how a firm is run internally, but also how the firm serves its customers.

The consultation proposes changes to rules on research and best execution reporting.

By Rob Moulton, Nicola Higgs, David Berman, and Charlotte Collins

On 28 April 2021, the FCA published a Consultation Paper (CP21/9) on proposed changes to UK MiFID relating to research unbundling and best execution — two areas covered by the EU “quick fix” changes to MiFID II last summer. However, the FCA’s proposals differ from the changes made in the EU, with the FCA noting that they reflect the different circumstances in the UK and the FCA’s own analysis as to how best to improve the regime.

The MiFID II research unbundling rules have always been very closely associated with the FCA, and so any change in this area may be seen as a significant concession by the FCA. The regulator is therefore at pains to stress that it is making only targeted amendments and that the regime overall is working well and achieving its aims. Further, it has proposed a much less generous threshold for its planned exemption for SME research than the EU equivalent, citing various data in support of its position. It also focuses its reasons for the change on wider capital markets reforms and future developments, rather than suggesting that the MiFID II rules have created an issue that requires fixing.

The guidelines aim to promote the adoption of robust practices for managing technology risks in the financial sector.

By Farhana Sharmeen and Marc Jia Renn Tan

On 18 January 2021, the Monetary Authority of Singapore (the MAS) issued revised guidelines (the Guidelines) to take into account the fast-changing cyber threat landscape and financial institutions’ increased reliance on cloud technologies, application programming interfaces (APIs), and rapid software development. The Guidelines apply to all banks, payment services firms, and brokerage and insurance firms.

The Guidelines, which became effective immediately on the date of issue, aim to support financial institutions by providing them a framework of best practices for overseeing technology risk governance, practices, and controls to address technology and cyber risks. The Guidelines are not meant to be exhaustive or prescriptive, and have incorporated feedback received from the public consultation conducted in 2019.

This annual publication outlines some of the primary focus areas in 2021 for UK-regulated financial services firms. Some of these topics are attracting attention because they are an emerging trend, or because they are at a key stage in the implementation cycle. Other topics are longstanding, but remain at the top of the PRA’s and FCA’s priority lists.

While this publication looks beyond Brexit and COVID-19, inevitably, in the short term, these issues continue to be dominant themes.

We hope…