At a recent Direct Marketing Association conference focusing on financial promotion controls, an FSA presentation was a useful reminder of the control system basics and provided useful insight into other current “hot button” issues.
Who: The Financial Services Authority
When: January 2003
At a January 2003 training event organised by the Direct Marketing Association, an overview given by Mike Cowie, manager of the "Financial Promotion Team" at the FSA, of the Financial Services and Markets Act and its applicability to the world of marketing and advertising provided some valuable reminders and insights.
First of all, the reminders.
A good starting point in a review of this area is to establish what authorities and rulebooks should be readily available to any adviser seeking to give guidance on financial promotions. The answer to this is that four will do for starters. The Financial Services and Markets Act 2000 (and in particular sections 19 and 21) itself, the Financial Promotion Order, The FSA's relevant Conduct of Business Rules and finally a very handy document entitled "The FSA's regulatory approach to financial promotions" published back in April 2002 and described by the FSA's speaker himself as a "seminal piece of work".
The "Regulatory Approach" publication reveals interesting aspects such as the fact that 90% of customer understanding about financial products they buy comes from advertising, and the deep distrust which consumers have for the small print which financial services advertising has historically contained.
Another reminder came by way of a broad overview of the key factors in the FSA's approach to the regulation of particular types of financial promotion. In the case of corporate image style promotion, the essential requirement was that the material in question should be "clear, fair and not misleading". For specific financial promotions the ultimate watchword was "balance", whilst with direct offers for particular products, detail was the thing, with clear disclosures.
It was also helpful to be reminded that there are various circumstances in which those involved in the process of bringing financial promotions to the attention of potential buyers may be exempt from the full rigour of the regulatory system. For instance, "generic promotions", for instance those talking in general terms about the benefits of financial planning or buying shares, were likely to be exempt, as were financial promotions aimed at "investment professionals" as defined and those who were "mere conduits" in the process. Examples of entities in this position might be media owners or marketing agencies who claim no part in the production of content for the material in question.
As for the general approach of the FSA, this was very much risk-based when it came to financial promotions. In other words the likely impact of a particular financial promotion had to be weighed in the balance against the probability of negative aspects of the promotion disadvantaging customers. In other words, if the perceived likely impact for a particular promotion was regarded as big, even if the probability of detriment was low, taking suitable action would still be regarded as a bigger priority, with a higher level of supervision required.
When it came to enforcement action and how this was triggered, by far the majority of actions taken resulted from reports from the public or competitors, while types of enforcement action taken varied from a requirement to amend the next reprint of the material in question, to insisting on an immediate amendment, to the withdrawal of literature and in some cases "formal remedial action".
Having said this, it was quite clear that very few cases in which complaints were raised ended up in full scale remedial action. As a result, the vast majority of the financial promotion cases handled by the FSA were never publicised. This, even though the FSA currently handles around 800 financial promotion enforcement tasks each year, half of which result from consumer complaints, roughly a quarter from competitor complaints, with the remainder from FSA's own monitoring.
The lack of publicity for the cases handled by the FSA results from a quirk in the statutory regime. This only allows the FSA to publicise cases where full remedial action is taken and a formal adjudication reached. Given that a very tiny minority of cases each year get to this pass, this results in a significant lack of publicity for the FSA's regulatory work.
This is a state of affairs which the "Financial Services Consumer Panel" has recently alleged to be harmful to consumers and in stark contrast to the transparent procedures operated for example, by the Advertisers Standards Authority. As a result of this development, the position in this regard is due to be reviewed in December 2003 and after that date we may see more publicity being given to the FSA's processing of complaints.
Also looking ahead, the current feeling within the FSA is that it will not be until 2005 that they will be regulating advice in respect of and advertising for general insurance and mortgages, whilst ever-increasing attention is being paid to particular issues such as inherently risky products (for example "precipice bonds" where a healthy rate of return comes at the price of there being no guarantee that the full capital sum will be returned at the end of the day), at the use of "past performance" figures, which is now generally frowned upon, greater emphasis on disclosures (formerly known as the now superseded "key features") and more pressure against the use of small print in financial promotions generally.
So it is a question of "don't hold your breath" for regular reports of all FSA financial promotion cases handled, but in the meantime the FSA do promise publication of regular consumer bulletins on issues which they are currently focusing on in complaint handling, by way of their website www.fsa.gov.uk.