At a recent conference at which Osborne Clarke financial services partner Paul Anning spoke, the FSA confirmed its continuing concern with financial promotions and identified its thematic focuses for 2005-06. Paul highlighted prospective changes to the FSA’s financial promotions regime, from both implementation of MiFID and the FSA’s own rules simplification work.
Topic: Financial services
Who: The Financial Services Authority and Osborne Clarke
When: March 2006
Where: London
What happened:
The Securities and Investment Institute's Third Annual Financial Promotions Regime Conference was held on 15 March 2006, with over 80 delegates in attendance. The speakers included a representative from the FSA and Osborne Clarke's own financial services specialist, Paul Anning.
The FSA confirmed its continuing concern with financial promotions given their importance in 'hooking' in consumers and identified its thematic focuses for 2005-06. Broadly speaking, it remains more concerned with the marketing of investment products than insurance and mortgage products, primarily because investment products are more complex and consumers have more to lose from them.
Five thematic focuses
Specifically, the FSA identified five thematic focuses. The first three related to specific products, while the other two related to sales channels where the FSA continues to have concerns:
(1) Venture Capital Trusts (VCTs) because of their inherent high risk and a trend towards their sale to the mass market, where it identified issues around balance within promotional material and the use of the internet as a sales channel for these products;
(2) investments for children because of the recently launched Child Trust Funds, where it highlighted the use of potentially misleading expressions such as "savings plans" and "safe" or "secure";
(3) capital secure structured products, where it flagged the use of unrealistic headline rates and the absence of fair and adequate descriptions;
(4) direct offer promotions; and
(5) website promotions.
The FSA's continuing concern with website promotions (which the Financial Promotions Department monitors proactively) was, it said, disappointing not least because it had carefully spelt out its concerns in its paper last February 2005 – "Financial Promotions – taking stock and moving forward". Many firms seem not to have taken these comments on board. In particular, it flagged how differently information is read, understood and used by consumers when presented online as opposed to in written form, and that providers must take this into account when designing websites used to promote financial services and products.
MiFID update
Paul Anning of Osborne Clarke spoke about the prospective changes to the FSA's financial promotions regime, from both implementation of MiFID and the FSA's own rules simplification work. He highlighted the deferred application date of 1 November 2007 for national implementation of MiFID (Markets in Financial Instruments Directive) agreed by the EC on 10 March 2006 and the draft detailed (Level 2) MiFID Directive published on 6 February 2006, as well as providing an update on the FSA's MiFID implementation programme.
FSA simplification drive pros and cons
One aspect of the FSA's simplification work concerns its proposed move toward greater use of high-level rules with minimum necessary prescription. This has benefits – it is consistent with the FSA's overall risk-based approach, permits flexibility and will shorten its rules – but at a cost: less certainty is likely to result in inconsistency between firms and increased compliance costs and firms are likely to seek FSA guidance more often, especially as the new approach would place the onus of understanding and application on firms' senior management.
Going forward, Paul highlighted the key MiFID principles, not least that all information, including marketing communications, addressed or disseminated to retail clients or potential retail clients must be:
(a) "fair, clear and not misleading"; and
(b) "presented in a way likely to be understood by the average member of the group to whom it is directed, or by whom it is likely to be received".
These introduce an express objective test based on the recipient's understanding (not the consideration or intention of the provider), using an "average" group member basis!
Why this matters:
The area of financial promotions – particularly web-based ones – continues to attract real interest from the regulator and so further enforcement action by the FSA can be expected. And yet, there is more change on the horizon both from Europe and with the FSA's move toward high-level rules, potentially making it harder to be assured of compliance!
