All regulated Marketing Managers know the importance of compliant financial promotions.
But this week, the need for compliance was brought sharply into focus as four people were arrested following a probe into a collapsed firm.
The FCA and Serious Fraud Office investigation into collapsed mini-bond provider London Capital & Finance followed an FCA order for the firm to take down promotional material for the bonds.
The regulator’s order ruled that the financial promotions were ‘misleading, not fair and unclear’. The ruling focused on the fact that the bonds were not eligible for ISA status, although this was claimed in the firm’s marketing.
The regulator subsequently ordered LC&F to cease all regulated activity.
What did LCF do wrong?
Issuing mini-bonds is not a regulated activity; it doesn’t require FCA authorisation. However, promoting the product did require regulatory authorisation.
In a previous statement, the FCA said that: “Issuing mini-bonds is not a regulated activity so firms issuing mini-bonds do not need to be authorised by the FCA.
“However, when an authorised firm approves a promotion for mini-bonds, they must ensure that it is in line with FCA rules that the financial promotion is fair, clear and not misleading. This means, for example, that risks are appropriately communicated.”
The potential confusion this causes was highlighted in a letter sent this week by Treasury Select Committee chair Nicky Morgan to the FCA’s chair Charles Randell.
The fact that LC&F did not require authorisation to issue mini-bonds, but did require it to promote the product may, Morgan believes, leave people outside financial services viewing regulation as ‘convoluted’.
What does this mean for regulated Marketers and their promotions?
The case obviously highlights potential harm done to investors in the firm’s bonds.
But beyond this – and of particular interest to Marketing teams – it shows the need for promotions to be compliant.
One aspect of this is firms using the status of ‘authorised by the FCA’ to claim credibility – when in fact only part of their operation is regulated. This was the case here. Firms need to ensure that any marketing materials are worded accurately so that they are not misleading.
The other aspect is the need for financial promotions to meet the FCA’s standards, even if the product they’re promoting is not regulated.
Importantly, this compliance isn’t just in terms of your material’s content, but also the way promotions are produced, reviewed and approved.
What can you do to ensure you’re compliant?
Regulatory bodies are clearly getting tough on firms that break the rules. To make sure you don’t fall into this category, follow these five steps:
- Understand the FCA’s rules. Refresh yourself on what a financial promotion is and the regulations that govern them.
- Make sure your promotions meet the regulator’s requirements in terms of being fair, clear and not misleading and on suitability.
- Write marketing materials that get fast Compliance team sign-off. Read our tips on writing content your Compliance colleagues can approve first-time. Doing this will enable you to speed your promotions to market while keeping them compliant.
- Remember that financial promotions aren’t all about print. Your website and social media also fall under the same strict FCA rules. Make sure they’re compliant too.
- Finally, financial promotions compliance isn’t all about the end result. You also need to make sure your production, review and approvals processes are up to scratch.
While this is non-negotiable, it can slow you down. Read tips on making your review and approvals process as efficient as it can be. Many Marketing and Compliance teams are turning to approval workflow tools to make this process quicker and more robust – consider whether this might help you.
Don’t fall foul of financial promotions rules
Financial promotions compliance is essential. The regulator has the power to ban your promotions if they don’t stack up against its rules. And, as this case shows, the penalties can be far more severe than that.
To help you understand and meet the regulator’s requirements, we have produced a free Financial Promotions Checklist for Marketing, which you can use to make sure your promotions are compliant. You can download your 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.