Recommendation 17

HM Government Not Addressed

We note that the Committee’s report recommended that the Government should ensure that financial services advertising regulations apply online and that the FCA has the necessary powers to effectively enforce the regulations. We would like to clarify our view of existing regulation in this area. Under UK law, a person is prohibited from communicating (or causing to be communicated) a financial promotion unless (i) the person is authorised by the FCA/ PRA; (ii) the promotion has been approved by a person authorised by the FCA/PRA; or (iii) the promotion is communicated within an exemption in the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the ‘Financial Promotions Order’). This is known as the ‘financial promotion restriction’ and is contained in section 21 of the Financial Services and Markets Act 2000. A general EU-derived exemption in the Financial Promotions Order broadly exempted electronic financial promotions from the scope of the prohibition where these were made from an establishment in an EEA state other than the UK. This exemption was a component of the UK’s implementation of the E-Commerce Directive (the ‘ECD’). Since 1 January 2021, following the end of the transition period, this exemption no longer forms part of UK law. The Financial Promotions Order still contains another exemption which has its roots in the ECD. This broadly exempts from the financial promotion restriction communications made by online intermediaries where the communication would fall within the scope of one of the three safe harbours in the ECD (‘mere conduits’, ‘caching’ and ‘hosting’). Our view, however, is that these safe harbours (and therefore the related exemption in the Financial Promotions Order) do not apply when the intermediary has a significant role in optimising the content or actively determining which recipients receive particular promotions – most obviously in the case of paid for advertising. As a result of this change, we have been looking at the operations of the major online platforms to determine whether they are subject to the financial promotion restriction and, if so, whether they are compliant. In this context, Google has put in place a new financial services verification policy to ensure financial promotions hosted through its ad service are only made by firms authorised by the UK financial services regulators (or which have otherwise been approved by such a firm). Other tech firms (including Microsoft, Meta and Twitter) have announced that they intend to put in place similar policies in due course (although we note there are no set timescales for implementation). We continue to believe that ‘downstream’ provisions within the financial promotion regime are best bolstered by earlier ‘upstream’ provisions requiring platforms to have appropriate systems and processes in place and so welcome the amendments to the Online Safety Bill. These mean that platforms and social media companies are subject to clear legal obligations to prevent/minimise consumers’ exposure to fraud related content on their sites in the first place.