Financial promotions. You all write, review, edit and publish them.
But what exactly is a financial promotion (FP) in the eyes of the Financial Conduct Authority?
Here we provide a refresher for Marketing teams, exploring:
- the definition of an FP
- what firms are required to do to ensure theirs meet FCA standards
- rules on social media and digital marketing
- why compliance matters
What is the definition of a financial promotion?
The FCA handbook defines an FP as an ‘invitation or inducement to engage in investment activity’.
In other words, it covers anything that promotes your brand or your firm’s products, and any communication that invites or attempts to persuade customers to buy the products you market.
This includes products promoted by ‘appointed representatives’ – any firm that carries out business on your behalf.
So, if you delegate the sales of your products and services to third parties – such as Independent Financial Advisers (IFAs) – you are responsible for any materials they use on your behalf.
A regulatory review into the insurance sector in 2016 was critical of the way some firms oversee their appointed representatives and ensure that their activity meets regulatory requirements. So it’s worth brushing up on the rules to make sure that if you have appointed representatives, they are using your marketing materials in a compliant way.
Financial promotions aimed at intermediaries, such as brokers, also fall under the regulator’s rules.
What does the FCA say about financial promotions?
Any firm regulated by the FCA is bound by its ‘Principles for Business’.
Some of these Principles are directly relevant to FPs:
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 (read our Treating Customers Fairly FAQs for tips on how to achieve this)
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 (read more about what the ‘fair, clear and not misleading’ rules mean in practice here)
The FCA has some prescriptive requirements that set out the process a firm should follow when developing a new FP.
These are contained in a number of the handbook’s ‘Conduct of Business Sourcebooks’.
The level of detail they include is probably of more interest to your Compliance team – but if you want to, you can read the Sourcebooks in full on the Authority’s website.
FCA handbook guidelines
The handbook states the following. We’ve bolded some of the things likely to be of most relevance and interest to Marketers:
‘When providing information to customers, a firm:
- Should pay regard to its target market, including its likely level of financial capability;
- Should 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; and
- Should have in place systems and controls to manage effectively the risks posed by providing information to customers and ensuring fair outcomes to customers.’
These requirements cover promotions including:
- Print, online, television and radio adverts
- Marketing brochures and literature
- Direct mail
- Web content
- Email marketing
- Social media
- Sales aids, such as presentations
What are the financial promotions rules on digital marketing?
There has sometimes been confusion over how digital marketing activities – websites; emails and particularly social media – are regulated.
In fact, all digital marketing is categorised as a ‘non-real time’ promotion.
This means that social media posts, emails and web content all need to be reviewed, approved and have the same record-keeping rigour as any other marketing collateral.
Make sure your Twitter and other social media posts are compliant by reading more about the FCA’s policy on social media and following our tips on minimising compliance risk in your social media strategy.
Why financial promotion compliance is important
The regulator has the power to ban your promotions if they don’t meet its requirements.
And when it comes to adverts, the Advertising Standards Authority polices and enforces advertising standards set by the Committee of Advertising Practice (CAP), which sets rules for advertising in the UK. These apply to all firms, including those not governed by any other regulator. Our blog on how to avoid producing misleading adverts has advice on how to comply with their rules.
If your promotions are withdrawn or your ads banned, you face obvious reputational damage. This is one reason why your brand is inextricably linked to your regulatory compliance.
Then there’s the matter of potential fines. The FCA’s fines rose tenfold from 2016 to 2017, demonstrating a willingness to penalise and publicise firms’ regulatory shortcomings.
Ensure your financial promotions are under control
Understanding what constitutes a financial promotion is the first step in ensuring yours comply with the Authority’s rules.
There are five key steps to producing an FP – and following (and documenting) the right process can be as important as the end result in terms of regulatory compliance.
To help you understand and follow these five steps, we have produced a free Financial Promotions Checklist for Marketing. Use the checklist 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.