How does section 21 approval work?

What approval does

Section 21 of the Financial Services and Markets Act 2000 (FSMA) restricts who can communicate a financial promotion in the course of business. Section 21(2) lifts the restriction where the content of the communication has been approved by an authorised person. That is what people mean by section 21 approval.

Approval is narrow. It allows an unauthorised business to communicate the approved content in the approved form. It does not make the business authorised, it does not cover other promotions and it says nothing about whether the business itself is carrying on a regulated activity.

Who can approve a financial promotion?

Only an authorised person can approve a financial promotion. Since 7 February 2024 an authorised firm generally also needs a specific FCA permission, often called the section 21 approver gateway, before it can approve promotions for unauthorised persons. There are limited exceptions, such as approving promotions of unauthorised companies within its own group or of its own appointed representatives.

The FCA introduced the gateway after concerns about firms approving promotions for products they did not understand. A firm applying for the permission has to show it has the competence and expertise for the kinds of promotion it will approve and the systems to monitor them. In practice approvers often specialise, so a firm that approves consumer credit adverts may not take on an investment fundraising. You can check a firm’s status and permissions on the FCA register.

What approvers check

An approver has to confirm that the promotion complies with the FCA financial promotion rules. The starting point is that a promotion must be fair, clear and not misleading. COBS 4 contains the detailed rules for most investment promotions. Other sourcebooks apply depending on the product, for example CONC for consumer credit, MCOB for mortgages and ICOBS for insurance.

The points an approver usually looks at include:

• whether the benefits are balanced by a fair and prominent indication of the risks
• whether claims about returns, past performance, comparisons or tax treatment are accurate and supported by evidence
• whether the required risk warnings and disclosures appear in the right form and in the right place
• whether the promotion suits the audience it will reach and the channel it will be seen in
• for some high-risk investments, the extra rules that can include set risk warnings, a cooling-off period for investors new to the firm and checks on whether the investment is appropriate for the person

For promotions to retail customers the approver also considers the Consumer Duty, in particular whether customers are likely to understand what they are being offered. Many approvers will want to understand the business and the product behind the promotion, not only the words on the page.

Approval is for one promotion

Approval attaches to the content that was approved. If you change the wording, the figures, the risk warnings or the format, you should usually treat the result as a new promotion that needs fresh approval. Moving an approved advert into a new channel can raise new questions too, because a layout that works on a web page may not survive being cut down to a short social post. An approver will usually expect to see changes before they go live.

Ongoing monitoring, refusal and withdrawal

Approval is not a one-off event. Approvers are expected to monitor the promotions they have approved while they are live and check that they still comply. In practice this usually means asking the business to confirm at regular intervals that nothing material has changed. If the facts move on, for example because the product terms change or a figure becomes out of date, a promotion can stop complying even though its words are the same.

An approver can refuse to approve a promotion. It can also withdraw an approval it has given if the promotion no longer complies or it can no longer stand behind it. Once approval is withdrawn the business generally has to stop communicating the promotion unless another route applies. Approvers also report to the FCA on their approval activity through notifications and a twice-yearly report.

What to prepare

Approvers work from the material in front of them. A request usually goes more smoothly if you have:

• the promotion in its final form and in the format in which it will appear, including images, video scripts and how it looks on a phone
• the product terms and any documents the promotion refers to
• evidence for each factual claim, figure and comparison
• a description of who the promotion is aimed at and where it will be published or sent
• information about your business and the people behind it
• a clear view of whether your business itself needs authorisation for what it does

That last point matters. An approver signs off a promotion, not your business model, and many approvers will ask how you have satisfied yourself on it before they take you on.

Your operations are a separate test

Section 21 governs how you market. Section 19 of FSMA, the general prohibition, governs what you do. If your business carries on a regulated activity without authorisation or an exemption, approval of your adverts does not change that. Equally, a business that is clearly outside the perimeter for its operations may still need its promotions approved. Why the two tests are separate · How the operations test works

Common misunderstandings

When a written opinion helps

Before you pay for approval it is worth knowing whether you need it. A solicitor’s written opinion can set out whether your materials are financial promotions at all, whether an exemption could apply to the way you distribute them and whether your business itself sits outside the perimeter. That last answer is often what an approver or a bank asks to see. How written opinions work

If approval is the right route, we can introduce you to authorised firms that hold the approver permission. They set and quote their own fees, and they pay us an introduction fee. Book a call to talk through which route fits your promotion.