Recommendation 34

HM Government · verbatim extract Accepted

We share the Committee’s concern about the appropriateness of the Financial Promotion Order exemptions for high-net-worth and sophisticated investors. As discussed during our evidence session, we believe the exemptions are a significant vulnerability in the financial promotion regime. Indeed, we have seen evidence that strengthening our rules has resulted in more firms using the exemptions to market high-risk investments to consumers who have limited funds to meet their retirement and care costs, but qualify as high-net-worth under the existing exemptions, or can be persuaded to certify themselves as sophisticated. For example, following our ban on the mass marketing of Speculative Illiquid Securities, the number of websites we proactively monitor that had an authorised firm approve the financial promotion fell from 20% to ~0%. The vast majority of this change was due to increased use of the exemptions. We have also seen the exemptions being exploited by bad actors to target ordinary consumers with inappropriate high-risk investments or scams. consumer harm that the FCA is unable to mitigate. We believe both the ability to self- certify qualification for the exemptions, as well as the relevant thresholds that apply, need to be addressed. As the exemptions are set in legislation, any changes are a matter for Government and Parliament.