Can an unregulated business still have a financial promotion problem?

Two questions, not one

When people ask whether their business is regulated, they usually mean one question. The Financial Services and Markets Act 2000 (FSMA) asks two. The first is about operations: is anything you do a regulated activity that needs authorisation or an exemption? The second is about marketing: is anything you communicate a financial promotion that needs to be made or approved by an authorised firm, or to fit an exemption?

The answers can differ in either direction. A business can be outside the perimeter for what it does and still have promotions that are restricted. An authorised business can be properly permitted for its activities and still get its marketing wrong.

How the two tests compare

Why the triggers differ

The operations test asks whether an activity is carried on by way of business. The marketing test asks whether a communication is made in the course of business. The FCA reads that as needing a commercial interest on the part of the person communicating, which need not be direct, and that person does not need to be carrying on a regulated activity as a business. A business that raises money once, or promotes something it does not itself provide, may sit outside the first and inside the second.

The lists are also different. The Financial Promotion Order uses controlled activities and controlled investments. They overlap with the regulated activities in the Regulated Activities Order but do not match them exactly, and the exclusions in one do not carry across to the other.

The marketing test covers almost any medium. Website pages, adverts, emails, pitch decks, webinars and social media posts can all be financial promotions. The FCA published finalised guidance on financial promotions on social media, FG24/1, in March 2024. Since 8 October 2023 promotions of qualifying cryptoassets have also been within the regime.

Three worked examples

A business lender advertising to sole traders

A lender that only lends to limited companies is usually outside the consumer credit regime for its lending, because a limited company is not a relevant recipient of credit. If its adverts reach sole traders and small partnerships, though, it may be promoting regulated credit. The exemptions aimed at business credit promotions have conditions about who the communication is directed at and what it says. The lending can be outside the perimeter while the adverts still need approval or an exemption. More on business lending

A software firm inviting investment in its own shares

Building and selling software is not a regulated activity, and a company issuing its own shares is generally not dealing in investments. A page on the firm’s website inviting visitors to invest in its shares is a different matter. It is likely to be an invitation or inducement to engage in investment activity, communicated in the course of business. Unless it is approved by an authorised firm with the right permission or fits an exemption, it may breach section 21 even though the firm has no regulated activity at all. More on fundraising and investor materials

An authorised firm promoting something outside its permission

Being authorised changes how the marketing test applies but does not remove it. Section 21 does not restrict promotions communicated by an authorised person, but the FCA’s financial promotion rules then apply to the firm. Approving a promotion for someone else is different again: since 7 February 2024 an authorised firm generally needs a specific FCA permission to approve financial promotions for unauthorised persons, with limited exceptions such as promotions within its own group or of its appointed representatives. On the operations side, the firm’s permission does not stretch to the activity it is promoting. If it carries that activity on, it needs the permission for it.

Who can fix each problem

An operations problem is usually fixed by the business itself: obtaining authorisation, becoming an appointed representative, relying on a properly evidenced exclusion or changing the model. See your options if you are inside the perimeter.

A marketing problem is usually fixed by an authorised firm with the right permission communicating or approving the promotion, or by changing the communication so that it fits an exemption or is no longer a promotion. See how section 21 approval works and promotion exemptions.

Common misunderstandings

When a written opinion helps

A written legal opinion can look at either test or both, depending on what you ask the solicitor to cover. If a bank, investor or advertising platform has asked about your position, it is worth being clear which test they are asking about before the work is scoped. How written opinions work

For the detail of each test, see do I need FCA authorisation? and financial promotions.