The Financial Conduct Authority Rules & Regulations

The FCA are the conduct regulator for around 51,000 financial services firms and financial markets in the UK. They are responsible for regulating sectors that play a critical role in the lives of everyone in the UK and to make sure that the relevant markets function well.

The FCA’s operational objectives are to:

• protect consumers – secure an appropriate degree of protection for consumers
• protect financial markets – protect and enhance the integrity of the UK financial system
• promote competition – promote effective competition in the interests of consumers

Protecting Consumers

The FCA monitor which firms and individuals are able to enter the financial markets, making sure they meet FCA standards before being authorised. They supervise how firms work and can stop those that don’t meet FCA standards from carrying out the activities they regulate.

Where firms are found to not  be following the rules, the FCA intervene. This may mean imposing penalties, stopping them trading or securing redress for consumers. It also means ensuring consumers receive the information they need in the right way, so they can make the best decisions for themselves.

Promoting effective competition

The FCA investigate a range of markets, identifying concerns and taking steps to address features that could inhibit effective competition.

• Helping customers get the information they need – improving the literature sent out to consumers via firms 
• Empowering consumers to assess the best choice for them – improve the communication between firm and its consumers 
• Helping consumers to act on their decisions – encouraging firms to be more transparent with premiums and costs
• Seeking to ensure that firms are competing fairly
• Making it easier for new competitors to launch 
• Encouraging innovation in financial services

Financial markets need to be honest, fair and effective so that consumers get a fair deal. The FCA regulate these markets using the following procedures:

Promotional content 

If a financial promotion or advert is misleading, the FCA have the legal power under s137S of the Financial Services and Markets Act 2000 to:

• get it withdrawn, or
• prevent it from being used in the first place

In deciding whether to act, they consider how a financial promotion or advert could lead to people suffering harm − either:

• directly (e.g. taking out a loan for which the real interest you pay is higher than what is advertised), or
• indirectly (e.g. you take out home insurance that was advertised as providing cover against theft, you then get burgled and end up spending money because theft was not actually covered)

The FCA assess the following:

• assess the extent to which the financial promotion is unclear, unfair and/or misleading
• assess which types of consumers the financial promotion is targeted towards
• usually inform the firm of their concerns and give them an opportunity to respond to those concerns

If they are not satisfied with the response from the firm, they will consider whether it would be appropriate to ban the advert.

Approving financial promotions

Before a firm approves a financial promotion for communication by an unauthorised person, it must confirm that the financial promotion complies with the FCA financial promotion rules. This is also true of firms which approve their own financial promotions for communication.

All financial promotions must be fair, clear and not misleading (COBS 4.2.1 R). This means that the content of a financial promotion must not be approved unless you satisfied that the promotion is fair, clear and not misleading.

To be in a position to confirm this, you should consider both:

• the presentation of the promotion (eg, whether the risk warnings are given sufficient prominence)
• the substance (eg, the fairness and veracity of claims made and whether these can be substantiated) 

You should therefore analyse, and carry out due diligence regarding, the substance of a promotion before approving its content for communication. When assessing whether a promotion is fair, clear and not misleading, a firm may need to consider (among other things):

• The authenticity of the proposition described in the relevant promotion. This may mean undertaking background checks on directors, controllers or other key individuals associated with the product provider.
• The commercial viability of the proposition described in the promotion. Has the promotion adequately disclosed any significant factors that could threaten the product’s viability? Could potential investors make an informed decision about investment?
• Whether advertised or headline rates of return are reasonably capable of being achieved. This may mean reviewing materials such as the product provider’s financial statements and/or management accounts, business plan, financial projections and capital position.
• Whether there are any fees, commissions or other charges within the investment’s structure or elsewhere that could materially affect the ability of the product provider to deliver advertised or headline rates of return.
• If the product is advertised as being eligible for a particular tax treatment (eg, for inclusion within an Innovative Finance ISA), does the product actually 
• a financial promotion should not describe a feature of a product or service as ‘guaranteed’, ‘protected’ or ‘secure’,

Promotional content 

If a financial promotion or advert is misleading, the FCA have the legal power under s137S of the Financial Services and Markets Act 2000 to:

• get it withdrawn, or
• prevent it from being used in the first place

In deciding whether to act, they consider how a financial promotion or advert could lead to people suffering harm − either:

• directly (e.g. taking out a loan for which the real interest you pay is higher than what is advertised), or
• indirectly (e.g. you take out home insurance that was advertised as providing cover against theft, you then get burgled and end up spending money because theft was not actually covered)

The FCA assess the following:

• assess the extent to which the financial promotion is unclear, unfair and/or misleading
• assess which types of consumers the financial promotion is targeted towards
• usually inform the firm of their concerns and give them an opportunity to respond to those concerns

If they are not satisfied with the response from the firm, they will consider whether it would be appropriate to ban the advert.

If the FCA decide to use these powers, they will issue a notice of direction to the relevant firm explaining what action it must take (which will normally be to withdraw the advert from circulation with immediate effect). If a firm doesn’t agree with the decision, it can make appeal to the upper tribunal.

For more information about the FCA rules and regulations, please visit the official website: https://www.fca.org.uk/about