You’re probably aware that the Financial Conduct Authority has the power to ban promotions and adverts.
But the start of a new year seems a good time to revisit the regulator’s rules on this – and remind ourselves what’s allowed, what’s not and what will get your marketing activity pulled.
Why will the FCA investigate?
The Financial Conduct Authority can investigate a financial promotion (FP) or advert if they are told that it is either:
- unclear, or
What will it do as a result?
If the Authority finds that an FP or advert is misleading, it has legal power to either:
- get it withdrawn, if it’s already out in the market, or
- prevent it from being used in the first place
What does the regulator consider when taking action?
Its main consideration is ‘how a financial promotion or advert could lead to people losing out’.
This ‘losing out’ can be direct or indirect. The examples the FCA gives on its website of people losing out are:
- directly (e.g. taking out a loan for which the real interest you pay is higher than what is advertised), or
- indirectly (e.g. you take out home insurance that was advertised as providing cover against theft, you then get burgled and end up spending money because theft was not actually covered)
What actions does the Financial Conduct Authority take against non-compliant promotions?
The regulator bases its actions on two aims:
- to help raise standards, for example for new products or in relation to new marketing channels like social media, and set ground rules
- to pre-empt other compliance breaches by sending a message to any firms thinking of using a similar approach
How does the regulator decide whether a promotion should be banned?
- It identifies which ones are misleading and prioritises the most serious cases.
- It then investigates further, with a number of different FCA staff reviewing the activity before the Authority decides what action to take.
- If action is needed, a committee of staff usually decides whether or not to issue a warning (known as a 'first notice').
- This notice leads to a firm being legally requested (through what is known as a 'direction') to remove the FP or advert.
When a promotion is banned
If this happens, the first step is for the regulator to inform regulated (also known as 'authorised') firms of the 'direction', stating its reasons for the ban.
The firm then has time to respond and to provide evidence that the promotion or advert isn’t misleading.
After this, the Regulator decides whether the direction needs to be amended, withdrawn or enforced.
If a firm doesn't agree with the decision, it can refer it to a government tribunal.
If the direction is enforced and the ban comes into effect, the regulator tends to publish the decision on its website, outlining the reasons for the ban, along with a copy of the FP or advert. It may also put out a press release.
The negative publicity arising from a ban is therefore significant. And this comes in addition to any direct losses in the form of wasted creative spend, spend on advertising space and the potential lost sales incurred via a lack of marketing.
Ensuring all your materials follow the correct compliance approval process is vital in preventing the negative fall-out from a ban.
- They need to comply with the recently-updated guidance on fair treatment
- They need to meet guidelines on suitability for the intended audience – particularly important if you are targeting vulnerable consumers
- They need to include the right disclaimers and disclosures
- All essential information has to be given sufficient prominence
- Importantly, the same rules apply for social media as for any other channel
- And even if you outsource responsibility for any aspects of your marketing, recently updated FCA guidance confirms that you, the regulated firm, remains ultimately accountable
Reading the latest FCA complaints data gives some good background on the transgressions that have reached the regulator’s attention recently, and gives a good idea of what to avoid doing.
A free guide to financial promotions compliance
To help firms meet their obligations around compliance for promotions and adverts, we have published the Compliance Guide to Financial Promotions.
It will help you ensure you are on the right track, by exploring:
- What is a ‘real time’ or ‘non-real time’ FP and how do they differ?
- What constitutes a financial promotion
- Why are financial promotions so heavily regulated?
- Is social media a viable medium?
- Policy standards
- Training and competency requirements
- Management information
- Record retention
- Specialist areas
The guide is free, and you can download a copy here.
Nothing in this document should be treated as an authoritative statement of the law. Action should not be taken as a result of this document alone. We make no warranty and accept no responsibility for consequences arising from relying on this document.