AQSE To Change SPAC Rules
The FCA has published its proposals to strengthen the financial promotion rules for high-risk investments and for authorised firms which communicate and approve financial promotions in its recent Consultation Paper.
The key proposals include changes to:
The FCA proposes to make navigating marketing restrictions and understanding which restrictions apply easier by rationalising the restrictions applying to different types of product.
The introduction of a new “Restricted Mass Market Investments” (RMMI) banner has been suggested, to incorporate NRRS (Non-Readily Realisable Securities) and P2P (Peer-to-peer) agreements, both of which are already subject to the same marketing restrictions.
The new RMMI category would sit between Readily Realisable Securities (which have no marketing restrictions) and Non-Mass Market Investments (NMMI) (mass marketing of which is banned to retail investors).
Recent social and economic changes have brought about more choice of products and services for consumers and a trend in self-directed investors making high-risk investments based on social and emotional factors (i.e. treating high-risk investments as a novelty or a competition/challenge). The risk here is that consumers may end up making investments which do not match their risk appetite, potentially resulting in unexpected (and significant) losses and an overall deterioration in the confidence in the investment market.
To create a market which enables consumers to invest with confidence and to only be able to access high-risk investments if they have the relevant knowledge and expertise, the FCA are looking to:
It is proposed that save for the appropriateness tests (which will only apply to RMMI), the above changes would apply to both RMMI and NMMI promotions. The positive frictions, client categorisation and appropriateness tests are also proposed to be generally only applied to new customers being marketed to.
The FCA proposes changes to 3 key areas of the financial promotion lifecycle:
These changes aim to ensure that approving firms have the relevant expertise in the promotions that they approve and the overall quality of promotions in the market is high.
To date, the cryptoasset market has generally been unregulated, however to address the risks in investing in cryptoassets, the FCA is proposing to apply the same promotion rules to qualifying cryptoassets as with other investments categorised as RMMI. This means that mass-marketing of cryptoassets to retail consumers will be acceptable so long as the promotions meet the financial promotion requirements.
The consultation closes on 23 March 2022 and once the final rules are published, firms will have 3 months to comply with the new requirements. For cryptoasset promotions, the requirements will apply from the date that qualifying cryptoassets are brought within the financial promotion regime.
Overall, the proposals seem positive and will help to guide consumers in making better-informed investment decisions, reduce the risk of a decline in trust and confidence in the investment market and facilitate firms in raising capital. However, once the new rules are introduced, firms will likely incur additional costs in familiarising themselves with the new requirements and putting in place new procedures to ensure that they are compliant, particularly for firms promoting cryptoasset investments, which will become subject to the financial promotions regime for the first time - costs that they will likely look to pass on to consumers. Nevertheless, the long-term benefits of having more robust rules in place outweighs the implementation costs and changes to the financial promotion rules have been long overdue to bring these more in keeping with the changing market.
Mei Chung joined the Corporate, Commercial & Finance team in August 2021. She advises entrepreneurs, investors, startups and established businesses across a variety of sectors on a broad range of corporate and commercial matters.
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