Dear Board | Release Date: 15th January 2024
To read a longer summary of this Dear Board letter, click here.
To access the original FCA document, click here.
Short Summary
The Financial Conduct Authority (FCA) addresses the Board of Investment-based Crowdfunding (IBCF) platforms, supervised by the Consumer Investments Directorate. The letter outlines the potential risks in crowdfunding business models and the FCA’s strategy for mitigating these harms. A data-driven approach will identify and engage with firms posing heightened risks.
A key focus is PS22/10, which strengthens financial promotion rules for high-risk investments. It mandates enhanced risk warnings, bans on investment inducements, introduction of cooling-off periods, and improved client categorisation and testing. A 2022 review revealed subpar compliance, prompting the FCA to expect firms to align with these standards for better consumer outcomes.
The FCA’s Policy Statement 23/11 provides guidance on when firms might require authorisation as a trading venue, especially in operating secondary markets or bulletin boards. Firms are expected to ensure they do not inadvertently operate a multilateral system without appropriate permissions.
Additionally, Policy Statement 23/13 introduces a gateway for approving financial promotions. Most IBCF platforms will likely need to apply for permission to continue approving promotions prepared by unauthorised persons.
The Consumer Duty, effective from July 2023, requires IBCF platforms to prioritise consumer needs and outcomes. This includes ensuring investor understanding, appropriateness of products and services, transparency in pricing, and comprehensive consumer support.
Financial resilience remains a priority, with firms expected to maintain adequate liquid resources for orderly wind-downs. The FCA urges firms to regularly assess and prepare for financial viability and operational stability.
Key Take-Aways for Firms:
- Ensure compliance with PS22/10 and other FCA policies.
- Implement the Consumer Duty effectively.
- Maintain financial resilience for potential wind-down scenarios.
- Proactively engage with FCA regulations and directives.