The effect of section 21 of the Act (Restrictions on financial promotion) is that in the course of business, an unauthorised person must not communicate an invitation or inducement to engage in investment activity or to engage in claims management activity3 unless either the content of the communication is approved for the purposes of section 21 by an authorised person or it is exempt. Under section 25 of the Act (Contravention of section 21), a person commits a criminal offence if he carries on activities in breach of the restriction in section 21 of the Act. A person who commits this criminal offence is subject to a maximum of two years imprisonment and an unlimited fine. However, it is a defence for a person to show that he took all reasonable precautions and used all due diligence to avoid committing the offence.
Another consequence of a breach of section 21 of the Act is that certain agreements could be unenforceable (see section 30 of the Act (Enforceability of agreements resulting from unlawful communications)). This applies to agreements entered into by a person as a customer as a consequence of a communication made in breach of section 21.
A person who is concerned to know whether his communications will require approval or, if he is an authorised person, whether the appropriate financial promotion rules1 will apply to his communications will need to consider the following:1
am I making a communication or causing a communication to be made? (see PERG 8.6);
if so, is it an invitation or inducement? (see PERG 8.4);
if so, is it made in the course of business? (see PERG 8.5);
if not, am I an authorised person?
If the answer to PERG 8.2.4G (8) is yes then the appropriate financial promotion rules1 will potentially 2apply (subject to the application provisions in COBS 1 and COBS 42). If the answer is no, then the promotion must be approved by an authorised person if it is a non-real time financial promotion. Authorised persons are not allowed to approve real time financial promotions (seeCOBS 4.10.4 R2). PERG 8.36.1G contains a flowchart explaining these steps.122
The restriction in section 21 applies to all forms of communication such as advertising, broadcasts, websites, e-mails and all other forms of written or oral communication whether sent to one person or many. However, the restrictions only apply to a communication made in the course of business and not, for example, to personal communications between individuals.
4Because of the United Kingdom’s exit from the EU, the Treasury amended the Financial Promotion Order. This included the amendment or removal of certain exemptions in the Financial Promotion Order that had previously been in place to take account of the United Kingdom’s membership of the EU. Where those amendments are relevant to the guidance in this Chapter the FCA has amended the guidance accordingly. The Treasury also made transitional provision so that nothing in those amendments to the Financial Promotion Order will cause a communication to breach the restriction in section 21, if the communication is required under a contact entered into before IP completion day5, and it would not have constituted a breach if it had been made before IP completion day5.
[Note: see Part 4 of the Financial Services and Markets Act 2000 (Amendment) (EU Exit) Regulations 2019 (SI 2019/632)]