Dear CEO | Release Date: 11th April 2019
To read a longer summary of this Dear CEO letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) has issued a reminder to CEOs of firms that approve financial promotions for unauthorised entities, underscoring the critical responsibilities in ensuring these promotions are fair, clear, and not misleading. This directive follows observations that despite previous warnings, due diligence by some firms remains significantly below expected standards. The FCA’s communication highlights the potential risks to investors from retail investment products, which may present high returns and complex terms that can be challenging to convey transparently in promotions.
The letter clarifies that firms must conduct thorough due diligence to verify that financial promotions meet regulatory standards before granting approval. This includes ensuring that promotions provide a balanced view of potential returns and associated risks, particularly for products like mini-bonds and other unlisted securities, which are typically marketed to a specific investor class, including high net worth and sophisticated investors.
Firms are expected to have robust systems and controls in place to comply with these regulations and are responsible for withdrawing approval if a promotion no longer aligns with these rules. The FCA warns that non-compliance could lead to enforcement actions, including the amendment or removal of financial promotions, or more severe measures such as suspension of activities or legal proceedings.
Key Take-Aways for Firms:
CEOs must review their processes for approving financial promotions to ensure they adhere strictly to FCA guidelines, reflecting accurate, balanced, and clear information about the products being promoted. Firms should also reassess their governance and oversight mechanisms to prevent and address any deficiencies in promotional approvals and be prepared to demonstrate their compliance efforts in response to FCA inquiries.