Prospective purchasers of financial services will often be swayed by terms such as “guaranteed” “protected” or “secure” in financial promotions. But regulator the FSA is concerned about abuse of these terms and is consulting on new guidance, as Rebecca Wakeford reports.
Topic: Financial services
Who: The Financial Services Authority ("FSA")
When: 6 June 2011
Where: United Kingdom
Law stated as at: 25 August 2011
In the FSA's Quarterly Consultation (No. 29) the FSA published its proposed changes to guidance on the use of certain terms in financial promotions. Through the new proposals the FSA is seeking to clarify when firms can use terms such as 'guaranteed', 'protected' or 'secured' in financial promotions or product literature as the existing financial promotions rules do not give explicit guidance on this.
The proposals aim to introduce some guidance on use of these terms to enable firms to understand explicitly the FSA's view of how the "fair, clear and not misleading" rule applies in this context, with the intention of providing greater clarity for the consumer as to what these terms mean, and to enable better supervision of this market.
The proposed changes
The FSA proposes amendments to the Conduct of Business sourcebook (COBS) and the Banking: Conduct of Business sourcebook (BCOBS) to ensure that a financial promotion (or feature of a financial promotion) should not be described as 'guaranteed', 'protected' or 'secure' or use a similar term unless:
- the term is capable of being a fair, clear and not misleading description of it; and
- the firm communicates all of the information necessary, and presents that information with sufficient clarity and prominence, to make the use of that term fair, clear and not misleading.
If implemented, the proposed changes will tighten up the requirements on firms to justify adequately the use of terms such as 'guaranteed', 'protected' and 'secure' in their financial promotions.
The FSA is proposing a transitional period of 6 months to enable firms to comply with the guidance in future product literature.
Why this matters:
If the proposed changes are implemented, firms regulated by the FSA who use the terms 'guaranteed', 'protected', 'secure' or synonymous words in product literature will need to evaluate whether the wording complies with the new rules.
Where changes are required, firms will need to revise and generate compliant product literature within the 6 month timescale and at its own cost. This may not be too onerous a requirement in a market where product specs change periodically and new products tend to require new documentation as a matter of course.
For consumers the proposals should provide greater clarity and transparency around the security of certain financial products enabling them to make better informed decisions when purchasing these.
Links to the texts referred to are below: