Summary
- Section 18(1) of the Financial Services Act 2025 prohibits any person from communicating, "in the course of business", an invitation or inducement to Engage in Investment Activity, the Financial Promotion Restriction, unless the communicator is a Licensed Firm or Exempt Firm, the content is approved by one, or the communication is exempt under Schedule 2.
- The restriction reaches communications originating outside GMC if they are "capable of having an effect in GMC" (s. 18(3)).
- Schedule 2 contains 33 exemptions (paras. 4–36), including communications directed only at Licensed Firms or persons outside GMC, one-off communications, introductions, generic promotions, group communications, employee share schemes and prospectus material.
- Agreements entered into as a result of an Unlawful Communication are unenforceable against the customer, who may recover money and compensation (s. 25).
- Part 9 (ss. 102–104) separately prohibits misleading statements and misleading impressions, and s. 19A prohibits misleading, deceptive, fraudulent or dishonest conduct.
- Every Licensed Firm's promotional material must carry the statement "Regulated by the GMC Gelephu Financial Services Office" (GEN 4.4.1).
What a financial promotion is
The Financial Services Act 2025 controls marketing separately from licensing. A firm may be perfectly entitled to carry on a Regulated Activity yet breach the Act by the way it advertises, and a firm that carries on no Regulated Activity at all may still breach it by promoting someone else's product.
Section 18(1) reads: "A person ('A') must not, in the course of business, communicate an invitation or inducement to Engage in Investment Activity". The Act calls this the Financial Promotion Restriction. "Engage in Investment Activity" is defined in s. 258 as entering or offering to enter into an agreement the making or performance of which constitutes a Regulated Activity (or would, but for a Schedule 1 exclusion or Schedule 3 exemption), or exercising rights conferred by a Specified Investment to acquire, dispose of, underwrite or convert a Specified Investment. Because the definition disregards the exclusions, a promotion for an activity that the promoter itself could carry on without a licence is still a financial promotion.
"Communicate" includes "causing a communication to be made" (s. 18(4)). A GMC company that instructs an overseas agency to run a campaign is communicating.
The three gateways in s. 18(2)
The restriction does not apply if:
- (a) the communicator "is a Licensed Firm or an Exempt Firm";
- (b) "the content of the communication is approved for the purposes of this section by a Licensed Firm or an Exempt Firm"; or
- (c) "the communication is an exempt communication under Schedule 2".
A Licensed Firm is a firm holding a Financial Services Licence from GFSO, the Gelephu Financial Services Office. Exempt Firms are the public and market-infrastructure bodies listed in Schedule 3. Gateway (b) creates the "approved promotion" route: an unlicensed issuer or promoter may have its material approved by a Licensed Firm. Schedule 2, para. 10 adds a related exemption for a communication caused to be made by an unauthorised person but made by a Licensed Firm, where the Licensed Firm prepared the content or it is a real-time communication.
Section 219 gives a defence: in proceedings for a contravention of s. 18, it is a defence "to show that he believed on reasonable grounds that the content of the communication was prepared, or approved for the purposes of section 18, by a Licensed Firm or Licensed Body".
Territorial scope: into and out of GMC
Section 18(3) provides that, "in the case of a communication originating outside GMC, subsection (1) applies only if the communication is capable of having an effect in GMC". Two consequences follow.
Marketing into GMC. A foreign firm's website, newsletter or sales call that can reach GMC residents is within the restriction unless a Schedule 2 exemption applies. "Capable of having an effect" is a low threshold; a globally accessible landing page that does not exclude GMC is capable of having an effect there.
Marketing out of GMC. A communication originating in GMC is within s. 18(1) without any territorial qualification. A GMC company promoting investments to an overseas audience must still rely on a gateway, most obviously Schedule 2, para. 4, which exempts communications "directed ... only at Licensed Firms or Licensed Bodies or persons outside GMC".
The Schedule 2 vocabulary
Schedule 2 turns on a set of definitions in para. 1 that determine which exemptions are available:
| Term | Meaning (Sch. 2, para. 1) |
|---|---|
| Made to a person | Addressed "to a particular person or persons", such as a telephone call or letter. |
| Directed at persons | Addressed "to persons generally", such as a television broadcast or website. |
| Real time communication | Made "in the course of a personal visit, telephone conversation or other interactive dialogue". |
| Non-real time communication | Anything else, "including communications made by letter or e-mail or contained in a Publication". |
| Solicited real time communication | A real-time communication initiated by the recipient or made in response to the recipient's express request. |
| Unsolicited real time communication | Any other real-time communication. |
Where an exemption requires the communication to carry an indication (for example, that it is directed only at certain persons), para. 2 requires the indication to be presented "in a way that can be easily understood" and in the manner "best calculated to bring the matter in question to the attention of the Recipient". Para. 3 allows a person to rely on more than one exemption for the same communication.
The Schedule 2 exemptions
The table groups the 33 exemptions by the situation they address. Several are restricted to non-real time or solicited real-time communications, so cold calls and unsolicited visits lose most of them.
| Situation | Para. | Conditions in outline |
|---|---|---|
| Recipients are professionals or abroad | 4 | Made only to, or directed only at, Licensed Firms, Licensed Bodies or persons outside GMC. A directed communication qualifies if it carries a clear indication of its target audience, is not accessible from other communications to a wider audience, is backed by "proper systems and procedures" to prevent others engaging, and appears in media principally for a market outside GMC (para. 4(2)). Not available for unsolicited real-time communications unless made from outside GMC for a business carried on outside GMC (para. 4(3)). |
| Customer-initiated | 5 | Communications from a customer to a supplier to obtain information about, or acquire, a Specified Investment or controlled service. |
| Follow-ups | 6 | A non-real time or solicited real-time follow-up to an exempt first communication, by the same person, to the same recipient, on the same activity and investment, within 12 months. |
| Introductions | 7 | Introducing the recipient to a Licensed Firm or Exempt Firm, where the introducer is not in the same Group or a close relative, receives no reward "from any person other than the Recipient", and it is clear the recipient is not seeking the introducer's advice. |
| Generic promotions | 8 | The communication identifies neither a provider of the Specified Investment nor anyone who Engages in Investment Activity in relation to it. |
| Exempt Firms | 9 | Non-real time or solicited real-time communications by an Exempt Firm for its exempt business. |
| Licensed Firm as communicator | 10 | Communication caused by an unauthorised person but made by a Licensed Firm which prepared the content, or which is real-time. |
| Intermediaries and media | 11, 12, 20, 24, 28 | Mere conduits that do not select or modify content (11); journalists in qualifying publications, with disclosure of financial interests in shares and share derivatives (12); persons who place promotional material (20); persons who disseminate information about Regulated Activities (24); advertisers receiving the publication they advertised in (28). |
| Director or employee on air | 13 | Spoken (not written) words by a director or employee of the issuer or a group Licensed Firm, on a broadcast or news website, not part of an organised marketing campaign, with disclosure of the speaker's role. |
| One-off communications | 14, 15 | A one-off non-real time or solicited real-time communication (14), assessed by whether it is made to one recipient or joint group, tailored to their circumstances, and not part of an organised campaign. A one-off unsolicited real-time communication is exempt only if the communicator reasonably believes the recipient understands the risks and would expect to be contacted (15). |
| Required by law | 16 | Communications required or authorised by another enactment. |
| Foreign firms, solicited calls | 17 | Solicited real-time communications by a non-GMC communicator from outside GMC for its business of Regulated Activities outside GMC. |
| Public issuers and markets | 18, 19, 33, 34 | Government and central bank securities (18); communications by Licensed Bodies or External Bodies about their facilities (19); promotions required by the rules of a Licensed Exchange or listed market (33); communications by a listed issuer about its own Relevant Securities without an invitation to deal and with a past-performance warning (34). |
| Corporate and group | 21, 22, 23, 29, 30, 32 | Joint Enterprise participators (21); communications to existing members and creditors about the issuer's own securities (22); one Group company to another (23); annual accounts and directors' reports that contain no invitation to deal and carry a past-performance warning where price or yield is mentioned (29); employee share schemes for employees, former employees and their families (30); sale of a body corporate where 50 per cent or more of voting shares or day-to-day control changes hands (32). |
| Trusts and estates | 25, 26, 27 | Settlors, trustees and personal representatives among themselves (25); trustees and beneficiaries about the trust or estate (26); insolvency practitioners (27). |
| Suppliers to business customers | 31 | Non-real time or solicited real-time communications by a supplier whose main business is goods or services to a business Customer in connection with that supply; not available for insurance, fund units or Arranging Credit (para. 31(3)–(4)). |
| Prospectuses | 35, 36 | Material included in a GFSO-approved Prospectus or required by Part 6 Rules (35); factual notices about a Prospectus, name and address of the offeror, nature and price of the securities, availability of the Prospectus (36). |
Consequences of an unlawful promotion
Unenforceability. Section 25 applies where, "in consequence of an Unlawful Communication, a person Engages in Investment Activity as a Customer". Any agreement entered into as part of that activity "is unenforceable against him and he is entitled to recover" money or property paid and "compensation for any loss sustained" (s. 25(1)). The same applies to obligations arising from exercising rights under a Specified Investment (s. 25(2)). The Court may allow enforcement if just and equitable, having regard to whether the communicator "reasonably believed that he was not making such a communication" (s. 25(3)–(4)). An "Unlawful Communication" is one "in relation to which there has been a contravention of section 18" (s. 258).
Regulatory sanction. A breach of s. 18 is a contravention of the Act (s. 218), exposing the communicator to public censure (s. 231), financial penalties (s. 232) and, for a Licensed Firm, suspension of its licence (s. 233). Anyone "Knowingly Concerned" in the contravention is equally liable (s. 220).
Reputational and licensing consequences. For a Licensed Firm, Principle 6 requires it to "communicate information to [Clients] in a way which is clear, fair and not misleading" (GEN 2.2.6). Breach of a Principle makes the firm liable to disciplinary action and may indicate it is no longer fit and proper (GEN 2.1, Guidance 2).
Part 9: misleading statements and impressions
Even a lawfully communicated promotion must be true. Part 9 creates three contraventions.
Misleading statements (s. 102). A person contravenes the Act by making a statement "which P knows to be false or misleading in a material respect", or which is false or misleading and P is reckless as to whether it is, or by dishonestly concealing material facts, where P does so intending or reckless as to whether it induces another person to enter into, or refrain from entering into, an agreement relating to, or to acquire, dispose of, subscribe for, underwrite or exercise rights under, a Financial Instrument, Specified Investment, Accepted Virtual Asset or Accepted Spot Commodity (s. 102(1)–(2)). The section applies where the statement is made in or from GMC, the person to be induced is in GMC, or the agreement would be entered into in GMC (s. 102(4)).
Misleading impressions (s. 103). Doing any act or engaging in conduct that "creates a false or misleading impression as to the market in or the price or value of any Financial Instruments, Accepted Virtual Assets or Accepted Spot Commodities", intending to create the impression, and either intending to induce dealing or knowing the impression is false and intending gain or loss (s. 103(1)–(4)). It applies where the act is done, or the impression created, in GMC (s. 103(7)). There is a defence of reasonable belief that the conduct would not create a false impression, and defences for price stabilisation and control of information rules (s. 103(6)).
Benchmarks (s. 104). False or misleading statements in the course of setting a Relevant Benchmark, or conduct creating a false impression that may affect a benchmark.
Section 19A overlaps with Part 9 and is broader: "A person must not, in or from the GMC, engage in conduct in relation to a Specified Investment, Virtual Asset, Spot Commodity, Fiat Currency or Fiat-Referenced Token or a Regulated Activity that is (a) misleading or deceptive or likely to mislead or deceive; (b) fraudulent; or (c) dishonest." Unlike s. 102, it does not require knowledge or recklessness on its face.
Content rules for Licensed Firms and Representative Offices
GEN adds content requirements to the Act's prohibitions.
Regulatory status. A Licensed Firm "must not misrepresent its status expressly or by implication" and must ensure every "key business Document" made available to third parties carries the disclosure "Regulated by the GMC Gelephu Financial Services Office" (GEN 4.4.1(1)–(3)). Key business documents expressly include "written promotional materials" and "websites", but not compliment slips, account statements or text messages (GEN 4.4.1(2)). The GFSO logo may not be reproduced without express written permission (GEN 4.4.1(4)). Separately, s. 20 prohibits any unlicensed person from describing or holding itself out as a Licensed Firm or Exempt Firm.
Representative Offices. GEN Chapter 9 provides for a limited Financial Services Licence to operate a Representative Office, available only to a person that is incorporated and regulated by a non-GMC financial services regulator (GEN 9.2.2). A Representative Office may market the financial products and services of its overseas principal, but under strict content rules and without carrying on any other Regulated Activity (GEN 9.1, Guidance 4–5). Its communications must be "clear, fair and not misleading" (GEN 9.12.1). Its Marketing Material must state the name of the Representative Office and on whose behalf it communicates, its regulatory status, and, if directed at a class of investor, a clear statement that no other person should act on it (GEN 9.12.4(1)). Any proposal, prospectus or offering document capable of acceptance must describe the foreign jurisdiction and regulator, the product's regulatory status there, and carry a prescribed warning that the product "is not subject to any form of regulation or approval by the Regulator" (GEN 9.12.4(2)). Past performance material must carry "a prominent warning that past performance is not necessarily a reliable indicator of future results" (GEN 9.12.6). (See our guide to branches and representative offices in GMC.)
Client classification
The Act and GEN distinguish Retail Clients from Professional Clients. A firm applying to carry on a Regulated Activity "with or for a Retail Client" must have adequate systems and controls for retail business, adequate systems to comply with the COBS requirements relevant to Retail Clients, and adequate complaints handling procedures (GEN 5.2.3). GEN Chapter 7 prescribes complaints handling procedures for Retail Clients (GEN 7.2) and complaints recording procedures for Professional Clients (GEN 7.3). The criteria for classifying a client, and the conduct rules that attach to each category, are set out in the Conduct of Business Rulebook (COBS) rather than in GEN or the Act. A promotion strategy should therefore be designed alongside the firm's COBS classification policy: an exemption that depends on the audience (for example Schedule 2, para. 4) is only as good as the systems that keep other people out (para. 4(2)(c)).
Practical checklist: a compliant marketing programme
- Classify each communication: made to or directed at; real-time or non-real time; solicited or unsolicited (Sch. 2, para. 1).
- Identify the gateway in s. 18(2): own licence, approval by a Licensed Firm, or a specific Schedule 2 exemption. Record which one.
- For content directed only at professionals or persons outside GMC, add the para. 4(2)(a) indication, block cross-links from general content, and implement access controls that meet para. 4(2)(c).
- Ban unsolicited real-time contact with GMC persons unless para. 15 (one-off) is clearly satisfied and documented.
- For introductions, confirm no reward is received from anyone other than the client (para. 7(2)(b)); note this is stricter than the Schedule 1 introducing exclusion.
- Add the "Regulated by the GMC Gelephu Financial Services Office" disclosure to every key business document, including websites (GEN 4.4.1).
- Put every statement of fact, price or performance through a Part 9 review; include past-performance warnings where Schedule 2 requires them (paras. 29(5), 34(2)(c)).
- Keep records of approvals and the basis for each exemption; reasonable belief is relevant under ss. 25(4) and 219.
Frequently asked questions
Does a foreign fund manager's website breach GMC law if GMC residents can read it?
The restriction applies to a communication originating outside GMC only if it is "capable of having an effect in GMC" (s. 18(3)). A generally accessible site promoting a fund is capable of that effect. The usual solution is Schedule 2, para. 4: direct the site only at persons outside GMC (or Licensed Firms), state that clearly, and implement systems to prevent others engaging.
Can a GMC startup promote its own share offering to investors?
Issuing its own shares is excluded from Dealing (Sch. 1, para. 8), but promoting the offer is still a financial promotion. Exemptions may cover communications to existing members and creditors (Sch. 2, para. 22), to Group companies (para. 23), for employee share schemes (para. 30) or in a GFSO-approved prospectus (para. 35). Wider marketing needs a Licensed Firm's approval or its own exemption. Part 6 of the Act separately governs offers of securities and prospectuses.
Is a referral to a GMC-licensed firm a financial promotion?
Yes, but Schedule 2, para. 7 exempts it if the introducer is independent of the Licensed Firm, receives no reward from anyone other than the recipient, and does not advise on the merits. A paid referral arrangement therefore needs another gateway, such as approval of the introducer's material by the Licensed Firm.
What is the penalty for a misleading advertisement?
A false or misleading statement made knowingly or recklessly to induce dealing contravenes s. 102, and misleading or deceptive conduct contravenes s. 19A. Sanctions include public censure (s. 231), financial penalties (s. 232) and licence suspension (s. 233); contracts induced by an unlawful promotion are unenforceable (s. 25).
Do Retail and Professional Clients matter for promotions?
Yes. Client classification under COBS determines which conduct and complaints rules apply (GEN 5.2.3, 7.2, 7.3), and several Schedule 2 exemptions depend on who the audience is. A Licensed Firm should align its marketing approvals with its classification policy.
Key takeaways
- Section 18 restricts any business communication that invites or induces investment activity; only Licensed Firms, approved content and Schedule 2 exemptions get through.
- The restriction reaches inbound communications capable of having an effect in GMC and all outbound communications from GMC.
- Schedule 2's 33 exemptions are precise; most are unavailable for unsolicited real-time contact.
- Unlawful promotions make resulting agreements unenforceable (s. 25), and misleading content is separately prohibited by ss. 19A and 102–104.
- Licensed Firms must carry the GFSO regulatory status statement on all promotional material and websites (GEN 4.4.1).
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Financial Services Act 2025 (Law No. 5 of 2025), ss. 16, 18, 19A, 20, 25, 102, 103, 104, 218, 219, 220, 231, 232, 233, 258; Schedule 1, para. 8; Schedule 2, paras. 1–36; Schedule 3
- GEN Rulebook 2026 (Version 1.0), Rules 2.1 (Guidance), 2.2.6, 4.4.1, 5.2.3, 7.2, 7.3, 9.1 (Guidance), 9.2.2, 9.12.1, 9.12.4, 9.12.6
