A review of outdoor financial promotions conducted by the FSA highlights many companies are confused as to whether their ads are exempt from applicable regulations, and many are getting it wrong. Zoe Hare separates the fair and clear from the misleading and reports on what is best practice.
Topic: Financial services
Who: Financial Services Authority
When: June 2009
Where: United Kingdom
Law stated as at: 21 July 2009
In June 2009, the Financial Services Authority ("FSA) published its opinion of outdoor financial promotions following a detailed review it conducted this year to asses the level of industry compliance with its rules and guidance. The review covered all kinds of outdoor financial promotions including billboards, posters, digital video displays and advertisements on trains, taxis, buses and ticketing barriers. The FSA estimated that over 80% of UK adults see outdoor advertising each week. Therefore it is important that all outdoor promotions satisfy the FSA's overarching requirements of being fair, clear and not misleading. This is particularly important given the high visibility, impact and exposure to a large number of consumers which outdoor advertising has.
In general the FSA considered that:
- the overall level of compliance was satisfactory;
- some companies had difficulty in determining whether the promotions fell within an exemption to the rules;
- companies did not always display the risk warnings required to ensure compliance; and
- some companies marketing high risk products assumed a relatively sophisticated target audience, despite outdoor advertising being inherently unable to target a specific audience.
Many of the promotions assessed were exempt as they did not invite or induce the consumer to engage in investment activity. However, some companies had incorrectly presumed their promotion to be exempt. The FSA outlined that typical advertisements which are exempt from the rules are those which "simply raise awareness of the firm without inviting or inducing the consumer to take any action, or without promoting the benefits of a particular product". However, the FSA was keen to assert that, even if a promotion is not deemed a financial promotion as it falls within the exemption, it must still be clear, fair and not misleading to consumers as well as satisfy the FSA's rules on client communications.
In some cases image advertising is exempt from the rules on financial promotions. However, this varies depending on the topic or product being advertised and thus the relevant FSA rules under which the advertisement falls. The FSA highlighted three particular products – investment, mortgage and insurance.
- For investment products, image advertising is exempt under COBS4. However, the advert must still be clear, fair and not misleading.
- For mortgage products, there is a specific exemption in MCOB3 for image advertising or brand advertising.
- However, for both investment products and mortgage products, where the advertisement goes beyond the definition in the FSA's guidance, the communication is deemed not to be image advertising and thus not within the exemption. Therefore it must adhere to the FSA rules on financial promotions.
In particular the FSA drew attention to the position for insurance products. It asserted that there is no exemption for image or brand advertising in the ICOBS. Companies cannot rely on the exemption where the advertisement is to promote insurance products.
By the very nature of outdoor advertising, companies are unable to target their promotions to a specific audience or section of the public. Outdoor advertisements generally achieve a high level of coverage of a wide retail audience. The FSA has therefore asserted that outdoor promotions should not "assume a particular level of sophistication, but to be designed to be understood by the majority of the general population".
The FSA considers that, although outdoor advertisements do not enable consumers to buy directly from them, they can be an important step towards an eventual sale. They are often considered by consumers when making financial choices. The FSA has stated that the advertisements must therefore be "stand-alone compliant". Companies must give information regarding the risks associated with the products in the sales process – the FSA deems it unacceptable for companies to promote only the product's benefits. The FSA still regards the promotion as unacceptable even if a company intends to communicate the associate risks later in the process.
Why this matters:
This review is important as it clarifies the position on outdoor advertising and financial promotions. This is particularly highlighted by the FSA's discovery that many companies were incorrectly considering their outdoor promotion to be exempt from the financial promotions rules. It is therefore necessary for all companies to carefully reconsider their advertisements in light of these findings.
The FSA has helpfully published a list of good and bad practices identified. The key points to note are:
1. Good practice
- Risk warning should be clearly displayed within the main body of the promotion and tailored to the specific product where appropriate.
- Information was sufficient and up-to-date.
- Headline claims were clearly and prominently substantiated, allowing consumers to make an informed decision.
2. Poor practice
- Firms relied on subsequent communications to provide key information.
- Firms had not given due consideration when signing off promotions about whether the exemptions they had relied upon were available.
- Posters remained in place when information was out-of-date, leading to them being potentially misleading."
The FSA's press release states that the FSA has since written to certain companies which it deems to be in breach of its rules.
It expects all companies to review their advertisements to ensure they comply with the FSA's requirements and check whether or not they fall within an exemption.