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Defining financial promotion for the Financial Services and Markets Act 2000

Stuart Fleet explains the definition of financial promotion in the context of the Financial Services and Markets Act 2000

Two workers seen from behind sitting in desk booths, one of whom is sitting on a chair that is incredibly high, holding him above the booth and at window level. Section 21 of Financial Services and Markets Act 2000 (FSMA) contains the general prohibition on a person communicating a financial promotion (which includes causing it to be communicated), unless either that person is authorised under FSMA (an authorised person) or the content of the communication has been approved for the purposes of section 21 by such a person. The authorised person is then responsible for ensuring that the financial promotion complies with the FCA’s detailed requirements. Communications must be fair, clear and not misleading.

However, communicating or approving a financial promotion is not a regulated activity. This limits the FCA’s oversight. There is no requirement to report to the FCA or seek its approval to communicate or approve a financial promotion. So, if an authorised firm is simply approving a financial promotion and not carrying out other regulated activities, a consumer will not be able to complain to the Financial Ombudsman Service or obtain compensation from the Financial Services Compensation Scheme for any investment losses arising from reliance on a financial promotion that is misleading.