The FSA has delivered a dismal assessment at the end of its recent monitoring of financial promotions using new media and warns that digital financial product marketers need to pull their socks up. Tom Dickin examines the ramifications for marketers.
Topic: Financial services
Who: The FSA
When: June 2010
Where: The Internet
Law stated as at: 23 June 2010
Traditionally firms have used TV advertisements, newspapers, magazines and brochures to promote their offerings but with financial service firms making an ever-increasing use of new media to promote their products and services, the Financial Services Authority (the "FSA") has conducted a review into firms' compliance with the financial promotions rules. It published its findings in its fifth industry update in June 2010 and the results will be of interest and concern to those using or looking to use new media to promote their products.
What is a financial promotion?
The financial promotion regime applies to any communication which is considered to be an "invitation or inducement to engage in investment activity". "Investment activity" is a broad term so the financial promotion regime casts a wide net.
The detailed rules around financial promotions are contained within the FSA Handbook. Firms should be mindful that just because they are communicating using new media, they are not exempt from the financial promotions rules.
What is new media?
The FSA has long been aware of internet promotions such as banner advertisements on websites and promotions communicated via e-mail. The term new media has been coined by the FSA (perhaps a bit late in the day in some eyes) to describe some of the latest technological innovations, including social networking websites such as Facebook, Bebo, and Twitter, online forums, blogs and smartphone applications.
The FSA reviewed approximately 30 Twitter and Facebook pages and about 20 online forums discussing insurance, investments, investment advice and mortgages.
Although, it cannot be said that the FSA's study was exhaustive or that the sample was big enough to draw any conclusive results, it was able to observe some concerning trends.
In particular it found that some promotions made using new media lacked the requisite risk warnings, while other promotions, although not very specific about the products or services being offered, went beyond the definition of image advertising and yet failed to comply with the relevant financial promotions rules.
Content is king
The FSA warned that its rules apply in a media neutral way; and that the focus is on the content of a financial promotion rather than the medium used to communicate it. This means that publications on the internet are treated in the same way as documents published in newspapers or posted to recipients.
The FSA has stressed that it "is not being prescriptive" but that if the limitations of a given medium make it difficult or impossible to display prominent risk warnings or balanced information, the firm should consider whether the medium is appropriate to promote their financial products. Firms using new media such as Twitter to communicate financial promotions, in particular, should take heed. The FSA has suggested that Twitter's 140 character limit may be insufficient to provide an adequate level of information to the consumer.
Firms also need to be mindful that new media may date more quickly than traditional media, so regular reviews should be undertaken to ensure promotional information is up-to-date and that out of date information is withdrawn as soon as possible.
Image advertising may be exempt from the financial promotion rules depending on the particular financial product that is being promoted. The FSA Handbook sets out the treatment of image advertising for specific financial products (such as, for example, investment products, mortgage products and insurance products).
In undertaking its review, the FSA found that there seemed to be particular confusion surrounding the area of image advertising. The FSA speculated that "firms may not have considered [their communication] to meet the definition of a financial promotion" and that they therefore might not have applied all the relevant communication rules. However, it stressed that firms cannot assume that because their communication is made using new media, that it is automatically an image advertisement and therefore exempt from the financial promotions rules.
The FSA reiterated that an image advertisement consists of the name of the firm, a logo or other image associated with the firm, a contact point and a reference to the types of regulated activities provided by the firm or to its fees or commissions; and that where a communication does any more than this, it will have to apply all the relevant communication rules.
Non promotional communications
The FSA pointed out that its rules apply to all communications between regulated firms and clients, which includes potential clients, and not just promotional ones. Communications must be "fair, clear, and not misleading". This may be of particular relevance to firms who communicate using online forums whose communication could not be said to be "inviting or inducing" someone to engage in an investment activity. They will still fall foul of the rules if they fail to present information in a fair, clear and straightforward way.
It is worth remembering that firms must ensure that every financial promotion complies with all the relevant rules and that in the FSA's view "it is not acceptable for firms to omit certain risk information [on the basis that] they intend to give it out later in the sales process". The FSA made it clear in its third industry update in September 2009 that "all financial promotions must be stand-alone compliant, regardless of their form, content, location or target audience".
Why this matters:
The FSA is clearly alive to the diversification of advertising techniques using new media, meaning this is firmly on its radar. Advertising can not therefore be used by advertisers of financial promotions as a way of subverting the rules and regulations. The FSA has confirmed that it will continue to monitor the use of new media and will take action against firms breaching its rules where appropriate.
It is likely that with the rapid advancements in technology coupled with the expanding demographic reach of social networking websites that firms will be increasingly tempted to turn to new media to promote their products. With the FSA's austere warning, it is more important than ever that firms pay heed to the FSA's financial promotion rules. Otherwise they may find themselves subject to enforcement action by the FSA which could include fines and negative PR.