Want to approve promotions? You’ll need to demonstrate your staff are competent.
In September 2023 the FCA published its policy statement on the new financial promotions approver gateway (PS23/13). In a nutshell, this introduces a new regulated permission that firms must be granted before they can approve financial promotions on behalf of unauthorised persons. Currently, any authorised firm can generally approve a financial promotion.
Firms will need to submit a variation of permission application for the approvers permission. The application window opens on 6th November 2023 and closes on 6th of February 2024; provided you apply within this window, your firm can continue to approve promotions until the outcome of your application has been determined. If you do not apply within this window, you will need to stop approving promotions when the new legislation takes effect on 7th February 2024.
The positives are, the FCA is quite clear that it will assess firms’ applications by reference to the rules and guidance already in place for the type of promotions they plan to approve. So, on the face of it, firms shouldn’t have to demonstrate anything ‘new’ when applying at the gateway; rather, they need to demonstrate how they are doing what they should already be doing. For example, in the simplest terms, a firm seeking permission to approve investment promotions will need to demonstrate how it complies with COBS 4.
There are a few points to be especially aware of, however. One of these is the need to convince the FCA of the competence and expertise (C&E) of individual staff involved in approving promotions, as firms have probably not had to formally demonstrate this to the FCA before. As part of its application, a firm will be required to outline how it has individual employees with sufficient competence and expertise, “both to provide initial approval and then to monitor the compliance of approved promotions on a continuing basis as well as clear lines of responsibility for approving a promotion.”
The FCA says it will assess this using, “Information provided by the applicant to show the individuals who will be involved in approving financial promotions have the relevant skills, knowledge and experience. This includes the previous employment history and qualifications of the individuals at the firm and how that relates to the financial promotions the firm intends to approve.”
While it is the firm that is the authorised person responsible for approving promotions, there is an emphasis here on individual employees that are involved in the approval of promotions. Again, this is not necessarily a new requirement. Sticking with investment financial promotions, the COBS 4.10 rules already require sufficient C&E on the part of individuals approving promotions. However, for most firms it will be the requirement to articulate and demonstrate C&E in this particular area that will be new. The FCA hints at potentially quite a high bar by saying it will assess information provided on individual employment histories and qualifications.
The FCA states in the policy statement that the C&E requirement extends beyond simply applying at the gateway, requiring ongoing maintenance of C&E and self-assessment. Furthermore, where a firm believes it has subsequently lost the relevant C&E, it should cease approving promotions and notify the FCA as well as consider varying its permissions.
Fortunately, the FCA is explicit in allowing firms to define for themselves exactly what that C&E looks like for them. Additionally, approvers need only demonstrate C&E at the product or service level, and not at the level of the underlying commercials. For example, a crowdfunding platform approving promotions for unlisted equities does not need to demonstrate specific C&E in the business model or commercial market that a specific issuer operates in; they only need to demonstrate C&E in unlisted equities.
On that basis, we would recommend that firms intending to apply for the new approvers permission carry out an exercise to:
a) identify precisely what knowledge and skill is required for the approval of the promotions they approve;
b) map this required level of knowledge and skill to the experience of its staff currently involved in approving promotions;
c) establish a structured training programme to fill any gaps in knowledge and skill, and for new joiners; and
d) establish succession and handover plans for relevant staff.
This is imperative for firms that routinely approve financial promotions as a core part of their business model. It would be advisable to carry out this exercise as soon as possible, and certainly before applying, in support of the firm’s application. Doing so would go some way to demonstrating to FCA how the firm will maintain its expertise and protect itself from risks arising from changes to staff.
Our team includes experts on the financial promotion regime and FCA applications. Let us know if we can help.
Sean Campbell