The move will require a change to the Financial Services and Markets Act (FSMA).

The change to the law, to be introduced when Parliamentary time allows, will see the general removal of permission for authorised firms to approve financial promotions from unauthorised firms.

The change, following a major consultation by the Treasury last year, will see the introduction of a ‘regulatory gateway’.

Any authorised firm seeking to approve a financial promotion from an unauthorised firm will need to apply via the gateway for approval to do so.

The net effect of the change will be to close a loophole where authorised firms lend their legitimacy to financial promotions from unauthorised firms. Because a financial promotion receives a ‘green light’ from an authorised firm, investors will tend to be more trusting.

There has been a growing concern that too many unauthorised firms are bypassing regulatory rules and promoting financial products which may be harmful to consumers.

The Treasury said there was evidence that authorised firms had approved promotions from unauthorised firms offering high rates of return where few checks or due diligence had been carried out in advance to check the claims.

The Treasury says that the current requirement for an authorised firm to approve the financial promotion of an unauthorised firm may not operate as a “strong enough safeguard” to ensure such financial promotions are compliant with FCA rules and are "fair, clear and not misleading."

Currently, any authorised firm can approve any financial promotion of an unauthorised firm and there is no specific process through which a firm must be assessed as suitable and competent before it is able to approve the financial promotions of unauthorised firms.

There would still be exceptions to the partial ban, for example when authorised firms wished to approve a financial promotion from an unauthorised person working within the same business.

The FCA will implement Option 1 of the original consultation. This will restrict approval of the financial promotions of unauthorised firms through the imposition of requirements by the FCA. 

It will involve amending section 21(2)(b) of FSMA to remove the “general ability” to communicate financial promotions which have been approved by authorised firms. 

A universal requirement (the Financial Promotion Requirement) would be imposed on all new and existing authorised persons prohibiting them from approving the financial promotions of unauthorised persons. An existing authorised person wishing to undertake approval of financial promotions would then need to apply to the FCA to have this requirement varied or cancelled.

The Treasury said in a statement today: “After carefully considering all responses, the government intends to bring forward legislation to implement a regulatory gateway when Parliamentary time allows. The regulatory gateway will be implemented through the imposition of requirements (option 1 set out in the response document). 

“The government has also developed proposals to implement a transitional period allowing an orderly transition between the two regimes.”