In December 2022, the Financial Conduct Authority (“FCA”) outlined new checks for those firms which want to approve financial promotions. The new measures will require firms to demonstrate they have the right expertise for the promotions they wish to approve.
With these new changes at the forefront of regulatory news, we put together some useful information on what financial promotions are.
What is the definition of a financial promotion?
Firms authorised by the FCA can issue or approve communications made in the course of business which amount to a financial promotion under section 21 of the Financial Services & Markets Act 2000 (FSMA).
This means that only firms authorised by the FCA can approve a financial promotion or a firm issuing any financial promotion must use a relevant exemption.
The FCA centralises its rules within the FCA Handbook. The FCA Handbook is a complete record of FCA Legal Instruments in a consolidated online format. The Handbook contains High Level Standards applicable to all regulated firms including rules on financial promotions.
The FCA handbook defines a financial promotion as an ‘invitation or inducement to engage in investment activity’.
This definition means any communication that promotes a firm’s regulated products, invites or attempts to persuade customers to buy the products a firm markets is considered a financial promotion.
This includes products promoted by Appointed Representatives (“ARs”). This means if a firm delegate the sales of products and services to third parties such as ARs, they are still responsible for any materials they create.
What does the FCA say about financial promotions?
Any firm regulated by the FCA is bound by its ‘Principles for Businesses’. Some of these Principles are directly relevant to financial promotions.
Principle 2 – A firm must conduct its business with due skill, care and diligence
Principle 3 – A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems
Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly.
Principle 7 – A firm must pay due regard to the information needs of its clients, and communicate information to them in a way which is fair, clear and not misleading
Principle 12- A firm must act to deliver good outcomes for retail customers.
What do the FCA expect from firms?
The FCA set out clear guidance that must be followed for how firms communicate with consumers. Marketing and information which is an invitation or inducement to engage in regulated activity that is communicated in the course of business should;
- pay regard to its target market, including its likely level of financial capability;
have in place systems and controls to manage effectively the risks and ensuring good consumer outcomes - include the firm’s full name and either address or contact point from which the address is available
- ensure it is clear, fair and not misleading
- not omit any matters that cause the promotion to be unclear, unfair or misleading
- not make false indications regarding the firm’s resources, independence, scale of activities or to the scarcity of service
- make no references to approvals by the FCA or any government body (unless such an approval has been obtained in writing)
- take account of what information the customer needs to understand the product or service, its purpose and the risks, and communicate information in a way that is fair, clear and not misleading
These requirements cover promotions including:
- Web content
- Email marketing
- Social media
- Print, online, television and radio adverts
- Marketing brochures and literature
- Direct mail
- Sales aids, such as presentations
Why is financial promotion compliance important?
The FCA can use investigative and enforcement powers to ban non-compliant promotions, levy fines and even pursue criminal prosecution.
Each quarter the FCA publish data demonstrating the work they do to proactively monitor financial promotions and investigate complaints and referrals. The latest publication shows insight collected data between 1st of July and 30th of September 2022. During this period, the FCA reviewed 340 promotions which came to the FCA’s attention through a variety of sources including reports from consumers, other regulators and proactive monitoring.
The FCA expect authorised firms issuing financial promotions to take responsibility in making sure all communications of financial promotions are clear, fair and not misleading. This also includes firms that are approving financial promotions and marketing across all media platforms such as websites, paid for Google ads and social media sites.
