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Key Regulatory Topics: Weekly Update: 29 July - 4 August 2022

04 August 2022

Despite summer being a traditionally quieter time, we have seen some important publications from the UK regulators this week. The FCA published its policy statement on strengthening financial promotion rules for high‑risk investments and firms approving financial promotions, as well as its policy statement on improvements to the Appointed Representatives regime. It has also been a busy week on the ESG front, with the European Commission publishing its summary report on the targeted consultation on ESG ratings and ESG factors in credit ratings, the FRC publishing a thematic review of TCFD disclosures and climate-related reporting in the financial statements of 25 premium listed companies, and the FCA publishing the findings of its review of TCFD-aligned climate-related disclosures by premium listed commercial companies.


FCA statement on switching in mortgage market

On 2 August, the FCA published a statement providing an update on switching in the mortgage market. Key points include: (i) the FCA’s most recent analysis, using data from the second half of 2021, shows that 6.3m mortgages (74%) are on fixed rates, typically fixed for between 2 and 5 years. Of the 2.2m (26%) on variable rates, around half are on discounted variable or tracker rates and half are on reversion rates. The number of mortgage borrowers not switching their mortgage deal when they could save money by doing so has declined significantly since 2016. The FCA estimates that borrowers of around 370,000 mortgages could save an average of £1,240pa for 2 years by switching to a 2-year fixed rate with their existing lender. However, those who the FCA estimates would save would not all save equally, and not all borrowers on a reversion rate who can switch, would save money by doing so; (ii) given the rising cost of living, it is important that borrowers consider their options and switch if they can, where it meets their needs and circumstances, and saves them money. Lenders and mortgage intermediaries should support customers to do this. The FCA recently asked lenders to consider what more they can do to encourage mortgage borrowers to think about switching to a less costly option where that is available; and (iii) the FCA does not see the same poor pricing practices that used to be prevalent in the general insurance markets, where pricing was opaque and loyal customers could face dramatic price increases over time as a result of price walking. However, the FCA will continue to monitor the market, particularly given the impact on borrowers of increasing mortgage rates and the rising cost of living and consider what further steps it may need to take. The statement sets out more details on the FCA's recent findings, alongside the actions it encourages borrowers and lenders to take. The FCA also notes that whilst the consumer duty is not yet in force, firms should not wait to apply these requirements and should look for opportunities to support consumers to make the decisions they need to make. Firms should also treat those who cannot switch fairly, and support those in financial difficulties.


Financial Crime and Sanctions

Please see the ‘Markets and Markets Infrastructure’ section for ESMA’s call for evidence on pre-hedging.


Please see the ‘Other Developments’ section for the FCA policy statement on strengthening financial promotion rules for high‑risk investments and firms approving financial promotions.

Fund Regulation

FCA consultation paper on broadening retail access to long-term asset fund

On 1 August, the FCA published a consultation paper on broadening retail access to the long-term asset fund (LTAF). The LTAF is a new category of authorised open‑ended fund, designed to enable investors to invest in long‑term illiquid assets through an authorised fund vehicle. Promotion of the LTAF is currently restricted to professional investors, certified and self‑certified sophisticated investors, and certified high net worth individuals. Some retail investors seek out non‑traditional investments in a search for diversification or higher returns. The LTAF may enable such diversified investment propositions, managed to appropriately high standards. On the other hand, there is a risk that retail investors may be overly reassured by the fund’s authorised status or not fully understand the illiquid nature and corresponding risk of the underlying assets. This consultation therefore sets out proposals for broadening the retail distribution of the LTAF to more categories of retail investors, whilst including further investor protections. The FCA proposes to: (i) treat the LTAF as a restricted mass market investment, in line with the FCA's policy statement on strengthening its financial promotion rules for high-risk investments. This will enable a broader range of retail investors to access the LTAF whilst ensuring investors understand the risks involved and can absorb potential losses; (ii) increase the amount of exposure that some other authorised retail funds (including funds of alternative investment funds), can have to the LTAF; (iii) align some LTAF rules with the investor protection rules that apply to other retail authorised funds, including: (a) full engagement with unitholders about any proposed fundamental or significant changes to the fund; (b) regular investor updates to be provided in the event of a suspension of dealing; (c) arrangements for the conduct of unitholder meetings; and (d) restrictions on what types of payments and charges can be taken from LTAF unit classes made available to retail clients; and (iv) remove the 35% restrictions on illiquid assets in unit‑linked products, where the investor is a qualifying default pension scheme. The FCA confirms that all firms that manufacture, manage or distribute the LTAF to retail investors and retail clients must comply with the new Consumer Duty. The consultation closes on 10 October. Subject to the responses received, the FCA will look to publish a final policy statement and final Handbook rules in early 2023.

Consultation paper

Markets and Markets Infrastructure

Please see the ‘Prudential Regulation’ section for the EBA’s final report and guidelines on criteria for exempting investment firms from liquidity requirements under the IFR.

IOSCO-CPMI discussion paper on CCP practices to address NDLs

On 4 August, the International Organization of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI) published a discussion paper on central counterparty (CCP) practices to address non-default losses (NDLs). CPMI/IOSCO explain that NDLs can threaten a CCP’s viability as a going concern and its ability to continue providing critical services. Therefore, under the CPMI-IOSCO Principles for financial market infrastructures (PFMI), CCPs must take action and have policies, procedures and plans for addressing NDLs, in addition to a sound risk management framework to mitigate and manage those risks. The discussion paper is intended to help advance industry efforts and foster dialogue by facilitating the sharing of existing practices CCPs employ to address NDLs, and by highlighting opportunities and challenges for CCPs to improve their planning for management of NDLs. It focusses on the key concepts and processes used by CCPs in four areas: (i) developing methodologies and practices for: (a) identifying scenarios in which NDLs may occur (NDL scenarios); (b) quantifying potential NDLs; and (c) assessing the sufficiency of resources and tools available to address NDLs; (ii) achieving the operational effectiveness of plans to address NDLs; (iii) reviewing, exercising, and testing plans for addressing NDLs; and (iv) providing effective governance of, and transparency, regarding plans for addressing NDLs, both in advance of, and during, an NDL event, and engaging with participants (e.g. clearing members and clients) and authorities. The deadline for responses is 4 October.

Discussion paper

ESMA updates CSDR Q&As

On 3 August, ESMA updated its Q&As on the implementation of the Central Securities Depositories Regulation (CSDR). Both changes relate to the section in the Q&As on settlement discipline. ESMA has updated a question on the calculation of cash penalties, and added a new question on the bilateral cancellation facility.


EC final report on disclosure, inducements, and suitability rules

On 2 August, the EC published a final report on disclosure, inducements and suitability rules following the retail investors’ study that it commissioned to feed into the development of its retail investment strategy. The methodology for the study was designed to capture the whole process of retail investor decision-making, from searching for information, reviewing information documents to undergoing a suitability assessment and demands and need test and receiving advice. The objective was the study and analysis of the investment environment the investors are in, with an analysis of the product costs, current practices in advice and product provision. The primary data collection focused on 15 EU member states to cover a wide range of situations regarding levels of take-up of retail investment products, market characteristics and geographical diversity. The findings relating to disclosure, inducements and advice, and suitability, demands and needs test are each set out in different chapters, with the findings then analysed under the light of the Better Regulation criteria to understand whether the current legal framework on disclosure, advice, inducements and suitability assessments is relevant, coherent, effective, efficient and has added value for consumer protection. Eight overarching conclusions arise from the study, and these are set out in Chapter 8.

Final report

ESMA call for evidence on pre-hedging

On 29 July, ESMA published a call for evidence on pre-hedging to help it to develop appropriate guidance. In its final report on the MAR Review, ESMA acknowledged that there are fundamentally different views on pre-hedging. As a follow-up to the MAR Review, ESMA is therefore undertaking an analysis of that practice in the market. In the course of that review, ESMA had made market participants aware that some national competent authorities had received suspicious order and transaction reports on pre-hedging behaviour. Mixed views were expressed on the usefulness of pre-hedging and the risks associated with this practice. ESMA had described that, on the one hand, pre-hedging involves a risk management aspect, as it takes place when a dealer acting as principal undertakes a trade in anticipation of a client order to manage the risk associated with a possible trade stemming from that order. On the other hand, pre-hedging may fall within the scope of insider trading if a broker were to use the information received from the client to make trades for his own account, including potentially trades against the client. Several market participants asked ESMA to issue guidance on what could be considered as MAR-compliant in terms of pre-hedging activities, and what behaviour might constitute frontrunning. Guidance was also requested on procedural aspects of pre-hedging, such as the documentation required, transparency regarding pre-hedging arrangements by brokers to their clients, and internal policies of market makers. The call for evidence also discusses the provisions of MiFID II that firms need to comply with when engaging in pre-hedging, and seeks feedback from market participants on how such provisions are currently applied. Particular focus is given to provisions governing conflicts of interest. The deadline for responses is 30 September.

Call for evidence

ECON draft report on proposed Regulation amending MiFIR

On 29 July, the European Parliament's Economic and Monetary Affairs Committee (ECON) published a draft report on the EC’s proposal for a Regulation amending MiFIR as regards enhancing market data transparency, removing obstacles to the emergence of a consolidated tape, optimising the trading obligations and prohibiting receiving payments for forwarding client orders. The draft report, dated 26 July, contains a draft EP legislative resolution which sets out suggested amendments to the proposed Regulation, as well as an explanatory statement. The explanatory statement details the amendments to the legislation – these include: (i) consolidated tape (CT). The rapporteur agrees with the EC that a CT should be introduced across all asset classes. The different CTs should be introduced in a phased approach - starting with bonds, then equities/ETFs and derivatives - and with no longer than six months between the initiation of the process for appointing the CTP in each asset class; (ii) transparency waivers. The rapporteur proposes a rebalancing of the rules governing capital markets by limiting the use of the waivers to pre-trade transparency obligations under Article 4 of MiFIR. The threshold for the use of those waivers should be determined by ESMA, and not be higher than twice the standard market size. This proposal introduces greater flexibility than the EC’s proposed fixed threshold, allowing ESMA to factor in different elements when determining the threshold; (iii) transparency: non-equities deferrals. To simplify the current regime and ensure end-investors transparency, the rapporteur believes that the deferral regime for non-equities should be harmonised. The price and the volume of a non-equity transaction should be published as close to real time as possible, and the price should only be delayed until, at most, the end of the trading day; (iv) systematic internalisers (SIs) definition and reporting requirements. ESMA should establish a register of all SIs and data reporting entities (DREs), specifying their identity and the instruments or classes of instruments for which they are either an SI or a DRE; (v) derivatives trading obligation (DTO) suspension. The EC proposal addresses the impact of the dealer-to-customer market by allowing for the temporary suspension when receiving client quotes from counterparties with no active membership on an EU trading venue. However, this solution does not address the dealer-to-dealer market for credit default swaps in Europe. The ECON’s amendment introduces the possibility for DTO suspensions in favour of dealer-to-dealer platforms that have established links to CCPs established in the EU, directly supporting the EU agenda to support the competitiveness of EU CCPs and clearing in the EU; and (vi) forwarding and execution of client orders. The rapporteur believes that the problems identified by the EC with the practices related to the so-called payments for order flows (PFOF) are symptomatic of a broader issue related to the best-execution regime. In particular, the wording of the best execution requirements under Article 27 of MiFID II has led to widely divergent supervisory interpretations, of which PFOF is the starkest example. While the rapporteur maintains the initial proposal regarding PFOF, the amendments seek to implement changes to the best execution requirements with a view to ensuring a harmonised approach to best execution.

Draft report

Prudential Regulation

EBA consults on revised guidelines on methods for calculating contributions to DGS

On 29 July, the EBA published a consultation paper on draft revised guidelines on methods for calculating contributions to deposit guarantee schemes (DGS) under the Deposit Guarantee Schemes Directive (DGSD). The revised guidelines aim to enhance the proportionality between the risk of a credit institution and its contributions to the DGS, and to simplify the original guidelines. The DGSD mandates the EBA to develop guidelines on methods for calculating the contributions to DGS and to review them at least every 5 years. In its 2021-2022 review of the guidelines, the EBA identified that those credit institutions that became subject to a DGS intervention since 2015 were mostly categorised amongst the riskiest members of their DGS. Therefore, the EBA concluded that, overall, the methodology set out in the guidelines remains appropriate. Nonetheless, the EBA identified elements of the calculation method that should be improved. The EBA’s most substantial proposals include: (i) setting minimum thresholds for the majority of core risk indicators and adjusting their minimum weights to better reflect the indicators’ performance in measuring the risk to the DGS; (ii) introducing an improved formula for determining the risk adjustment factor of each member institution to ensure a constant relationship between the riskiness of institutions and their DGS contributions; and (iii) specifying how to account for deposits where the DGS coverage is subject to uncertainty, including in relation to client funds, therefore ensuring closer alignment between the amount of covered deposits of a credit institution and its contributions. The EBA has also streamlined and simplified the guidelines, to make them clearer. The deadline for responses is 31 October.

Consultation paper

EBA final report and guidelines on criteria for exempting investment firms from liquidity requirements under IFR

On 29 July, the EBA published its final report and guidelines on the criteria for the exemption of investment firms from liquidity requirements in accordance with Article 43(4) of the Investment Firms Regulation (IFR). Under Article 43(1) of the IFR, small and non‐interconnected investment (SNI) firms that meet the conditions set out in Article 12(1) of the IFR may be exempted from liquidity requirements by their competent authority. These guidelines are developed in accordance with the mandate set out in Article 43(4) of the IFR, and specify the criteria under which competent authorities may exempt SNI firms from liquidity requirements. The guidelines contain three main elements: (i) the set of investment services and activities provided by investment firms which are eligible for the exemption; (ii) the criteria for the exemption; and (iii) guidance for competent authorities when granting and withdrawing an exemption. The guidelines will apply from two months after the issuance date. 

Final report

Sustainable Finance

EC summary report on ESG ratings and ESG factors in credit ratings consultation 

On 3 August, the EC published a summary report on a targeted consultation on the functioning of the ESG ratings market in the EU and the consideration of ESG factors in credit ratings. The report focuses on: (i) use of ESG ratings and dynamics of the market. The vast majority of respondents declare that they do use ESG ratings and among these, 77% use them ‘very much’, while a smaller share use them ‘a little’. Almost all respondents replied that they value and need transparency in data sourcing and methodologies and timeliness, accuracy and reliability of ESG ratings. The majority of respondents, in total and within each main user group, expect to increase their usage of ESG ratings, at least to some degree but often to a large degree; (ii) functioning of the ESG ratings market. The large majority of respondents (over 84%) consider that the market is not functioning well today. A large majority of respondents consider that the lack of transparency on the methodologies used by the providers is a problem in the ESG ratings market, and that there are significant biases with the methodology used by providers, with the market prone to potential conflicts of interests; (iii) intervention in the ESG ratings market. Almost all respondents (94%) consider that intervention is necessary, of which the large majority (80%+) support a legislative intervention with the remainder supporting the development of non-regulatory intervention in the form of guidelines or a code of conduct. The vast majority of respondents (82%) consider that ESG rating providers should be subject to some form of authorisation/registration regime in order to offer their services in the EU; (iv) incorporation of ESG factors in credit ratings. Credit ratings are used by the large majority of respondents for investment decisions (48 out of 55), but they are only decisive for 9% of respondents; they are rather one of many sources of information (for 51%) or a starting point (for 13%).On the other hand, most respondents do find that the level of disclosures as to which credit ratings actions have been influenced by sustainability factors has improved sufficiently, with some laggards; and (v) intervention in the credit ratings market. Slightly more respondents consider that the current trends in the market are sufficient to ensure that CRAs incorporate relevant ESG factors in credit ratings (52 out of 101), than those who disagree. As far as enabling users’ understanding of how ESG factors influence credit ratings is concerned, the majority (72%) do not consider market trends and ESMA guidelines to be sufficient. However, out of those who do not consider the current situation sufficient, the majority favours a non-legislative approach.

Summary report

UK government response to ISSB exposure drafts of IFRS S1 and IFRS S2

On 1 August, the UK government published its response to the International Sustainability Standards Board (ISSB) exposure drafts of two IFRS Sustainability Disclosure Standards, IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information, and IFRS S2 Climate-related Disclosures. The UK government strongly welcomes IFRS S1 and S2, and makes four high-level and strategic points to support the development of the final standards. In particular, the ISSB should: (i) set a baseline standard which is accessible for use on a global scale; (ii) implement S1 and S2 in a proportionate and scalable way to accommodate the circumstances of different organisations and jurisdictions; (iii) ensure S1 and S2 are principles-based; and (iv) provide precise definitions and clarity on what is required to achieve compliance. Given the critical importance of the ISSB standards, the UK government has asked the Financial Reporting Council, the FCA, the UK Endorsement Board and the BoE to provide substantive comment letters on the exposure drafts.


FRC review of TCFD disclosures and climate in financial statements

On 29 July, the FRC published a thematic review of TCFD disclosures and climate-related reporting in the financial statements of 25 premium listed companies. The review assessed the sampled companies’ annual reports and accounts to see whether they complied with the requirements of Listing Rule 9.8.6R(8), which requires companies to include a statement in their annual report setting out whether they have included disclosures consistent with the TCFD framework. The FRC found that the companies included in the review were broadly able to provide the TCFD disclosures that are ‘particularly expected’ by the FCA’s Listing Rule. 22 of 25 companies also made reference to climate-related risks in their financial statements disclosures, a significant improvement since the FRC’s 2020 thematic review. However, five key areas for improvement were identified: (i) the FRC expects the specificity and granularity of companies’ climate-related disclosures to improve as their processes to manage climate-related risks and opportunities become more fully embedded into governance and management structures; (ii) the discussion of climate-related risks and opportunities should be balanced, and companies should consider linking the description of climate-related opportunities to any technological dependencies; (iii) companies should consider the interlinkages of TCFD disclosures with other narrative disclosures in the annual report; (iv) companies should clearly articulate how they have considered materiality in the context of their TCFD disclosures when preparing the TCFD ‘statement of compliance’. Those claiming consistency with a recommended disclosure may be challenged where it is not clear that all relevant and material elements of the recommended TCFD disclosures have been addressed; and (v) companies should consider the connectivity between TCFD disclosures and the financial statements, and provide explanations where necessary. The FRC's expectations against the respective Listing Rule and TCFD requirements are summarised in Appendix 2. Examples of better practice disclosures are also provided throughout the report, and the FRC encourages companies, especially those at an earlier stage in their climate-related reporting journey, to use these as reference points when preparing their own disclosures.


FCA review of TCFD-aligned disclosures by premium listed commercial companies

On 29 July, the FCA published the findings of its review of TCFD-aligned climate-related disclosures by premium listed commercial companies. The assessment involved a high-level quantitative review of climate-related disclosures made by the 171 premium listed companies that published their disclosures by end-April, as well as a more targeted and detailed qualitative analysis of the consistency of disclosures with the TCFD framework for a sample of 31 of those companies. Key observations include: (i) over 90% of companies self-reported that they had made disclosures consistent with the TCFD’s Governance and Risk Management pillars, but this dropped to below 90% for the Strategy and Metrics and Targets pillars; (ii) 81% of companies indicated that they had made disclosures consistent with all seven recommended disclosures; (iii) in some instances, companies indicated that they had made disclosures consistent with the recommended disclosures, but the disclosures themselves appeared to be very limited in content. The FCA is considering these in more detail and may take action as appropriate; (iv) the number of companies making disclosures either partially or mostly consistent with the TCFD framework increased significantly compared with 2020. The most common reporting gaps were in respect of the more quantitative elements of the TCFD’s recommendations, such as scenario analysis and metrics and targets; and (v) the levels of detail and consistency in companies’ disclosures were often correlated with sector, size and risk assessment (the extent to which that company had identified climate change as among principal risks). The FCA is encouraged by the overall improvement in the completeness and consistency of disclosures with the TCFD framework following its regulatory intervention. However, the report reiterates the FCA’s expectations of premium listed companies as they prepare climate-related disclosures in future annual financial reports. Issuers are also encouraged to refer to the examples of better practice included in the FRC’s complementary thematic review report. The FCA has been working closely with international partners at the International Organization of Securities Commissions (IOSCO) to encourage progress towards a common global baseline sustainability-related reporting standard under the IFRS Foundation’s new ISSB. The FCA expects the UK government to consult in due course on a mechanism to adopt the ISSB’s standards in the UK, and it will separately consult on adapting its existing TCFD-aligned climate-related disclosure rules for listed companies to reference the final IFRS Sustainability Disclosure Standards adopted.


Other Developments 

FCA policy statement on improvements to the Appointed Representatives regime

On 3 August, the FCA published a policy statement on improvements to the appointed representatives (AR) regime. The FCA previously consulted on the proposals in December 2021. This policy statement summarises and responds to feedback received, and also includes the FCA’s final Handbook rules and guidance and updated forms. For those proposals that received wide ranging support, the FCA is proceeding with these as consulted on. It has made some changes in the final rules to add flexibility, make it easier for firms to implement relevant proposals, and reduce duplication and regulatory burden. The FCA has also made some changes to ensure that the data it is requiring from principals will be the most useful in identifying trends, issues and harms arising from the regime, while minimising burden on firms. Under the new rules, principal firms will have to: (i) notify the FCA of future AR appointments 30 days before the appointment takes effect; (ii) apply enhanced oversight of their ARs, including ensuring adequacy of systems and controls, sufficiency of resources and monitoring AR growth; (iii) take more effective responsibility for their ARs, including by monitoring and assessing the risk of harm to consumers and market integrity and overseeing ARs to a comparable standard as if they were employees of the principal; (iv) have clarity on the circumstances where they should terminate an AR relationship and assist ARs with an orderly wind-down; (v) annually review information on ARs’ activities, business and senior management. Principals would also need to prepare a self‑assessment document at least once a year, covering how they meet the requirements of the policy; and (vi) provide complaints data and revenue information for ARs on an annual basis. The changes will take effect on 8 December, following a four‑month implementation period. As part of the FCA's enhanced reporting requirements, principal firms should expect to receive a request for data about their ARs later in 2022.

Policy statement

FCA Dear Remuneration Committee Chair letter on remuneration outcomes

On 2 August, the FCA published a Dear Remuneration Committee Chair letter sent to proportionality level one banks, building Societies and PRA designated investment firms, setting out its expectations to remuneration for 2022/23, and highlighting focus areas for firms to take into account. The letter covers: (i) culture and accountability. Remuneration policies should be risk-focused, helping to identify and manage risks and promoting a strong risk culture in the firm. Through the Senior Managers and Certification Regime, individuals should be held accountable for their conduct and competence with a clear, strong, and evidenced link between behaviours and remuneration outcomes. Later in 2022, the FCA will consult on a package of measures to promote diversity and inclusion (D&I) in the financial services sector. This will include proposals to make changes to the responsibilities of the Remuneration Committee. The FCA envisages the Remuneration Committee Chair's role remaining as important as ever in establishing the right conditions for a healthy culture to thrive; (ii) the new Consumer Duty. A firm’s remuneration policies should be designed to support the expectations set by the new Consumer Duty when it comes into effect; (iii) the rising cost of living. The current economic environment is both a current and future risk that the FCA expects firms to take into consideration when designing and reviewing the remuneration policies and practices and the incentives created; (iv) operational resilience. In the event of service disruptions, data breaches or other interruptions, the FCA expects firms to respond appropriately, such as making remuneration adjustments where appropriate, and to recover and learn from the experience; (v) ESG. As firms respond to evolving regulatory, societal and customer expectations in this area, firms may wish to review whether incentives for their senior leadership and other material risk takers are aligned to these wider ESG risk factors. Firms may wish to use remuneration and incentive programmes as a lever to align incentives with these commitments; and (vi) D&I. Pending the FCA's D&I consultation and its outcomes, the FCA believes that remuneration and incentives have a part to play in supporting diversity in firms. In line with previous years, firms with an accounting reference date of 31 December should submit their Remuneration Policy Statement (RPS), Annex 1: malus and RPS tables 1a, 2 and 8 to the FCA by 31 August. Firms with an accounting reference date later than 31 December should submit their RPS no later than eight months after the end of the preceding financial year.


FCA policy statement on strengthening financial promotion rules for high‑risk investments and firms approving financial promotions

On 1 August, the FCA published its final policy statement on strengthening its financial promotion rules for high-risk investments (HRIs) and firms approving financial promotions. The policy statement summarises the feedback it received to its January consultation paper, and sets out the FCA’s final policy position and Handbook rules, which are designed to strengthen the regime for how HRIs can be promoted. At this stage, the final rules apply to those HRIs which are already subject to marketing restrictions. The policy statement also contains the FCA’s final strengthened rules for firms when communicating or approving financial promotions. Respondents generally agreed with most of the FCA’s proposals, and particularly welcomed the behavioural testing the FCA conducted for the consumer journey proposals. There was also strong support for all the proposed changes to strengthen the role of authorised firms communicating and approving financial promotions. However, some respondents raised concerns that the FCA’s proposals could have negative unintended consequences and deter consumers from investing, and others asked the FCA to further refine its categorisation of HRIs. Based on this feedback, the FCA has made several targeted changes to its final rules, summarised in Table 1 of the report. These include changes in relation to: (i) risk warnings and associated risk summaries; (ii) incentives to invest; (iii) direct offer financial promotion rules; (iv) the cooling off period; (v) client categorisation; (vi) record keeping requirements; and (vii) the implementation period. The rules relating to risk warnings for financial promotions of HRIs will take effect from 1 December. All other rules will take effect from 1 February 2023. Firms will need to comply with these rules from the applicable dates. The FCA will closely monitor implementation of these rules and will act where it sees firms breach them. The FCA will publish its final rules on the promotion of qualifying cryptoassets once the relevant legislation to bring qualifying cryptoassets within the scope of the financial promotions regime has been made.

Policy statement