Financial Promotions in the Course of Business

The regulatory regime around financial promotions applies to all companies in the UK, regardless of whether they operate in the financial sector. Companies should be aware they risk committing a criminal offence if they communicate a financial promotion that does not comply with the regulatory regime.

What is a Financial Promotion?

Financial promotions in the UK are regulated by the Financial Conduct Authority (“FCA”). The restriction, set out in section 21 of the Financial Services and Markets Act (“FSMA”), states that a person or company must not, in the course of business, communicate an invitation or inducement to engage in investment activity. This restriction is subject to whether any exemptions or authorisation apply to the communication.

The regulation bites on communication that is an invitation or inducement to engage in investment activity. To expand on what is meant by this, the FCA’s Perimeter Guidance Manual (“PERG”) states that the ordinary dictionary definition of these terms should be considered, set in the context of the particular communication.

For private limited companies which are not authorised by the FCA, careful consideration should be given to communication that has a promotional element. This is set apart from communication that is purely factual. Statements that speculate about the company’s future performance, or its share price may have an underlying purpose or intent to encourage investors to act. They may be inducements to engage in investment activity, depending on their contents and the extent to which they seek to promote investment in the company.

However, the scope of the regime is far-reaching, and it is not just company statements this applies to. A financial promotion could take the form of communication in social media, be it Linked In, Facebook, Twitter or the company website. As such, employees responsible for public communications on any of these sites should be given sufficient guidance to understand what they can and cannot say.

Further, the regime applies to both oral and written communications. It is possible the rules could also prohibit a chairman of a company from speculating about future performance if the intention is to encourage investors to act.

Consequences

The consequences of getting it wrong are severe. Not only is it a criminal offence, but it could result in an unlimited fine and the resulting transaction being void.

The PERG Guidance can be found here

This can be a complex area to navigate. Should you have any queries regarding whether any communication may be caught by the financial promotions regime or any related queries, please contact a member of the commercial team who will be happy to assist.