In a key September 2012 speech, the Head of Conduct Risk at the FSA made various observations about the regulatory pitfalls of using social media and other digital platforms for financial promotions. David Blair and Aisling Pringleton report.
Topic: Financial services
Who: The Financial Services Authority ("FSA")
When: 21 September 2012
Where: United Kingdom
Law stated as at: 27 September 2012
What happened:
In a speech on 18 September 2012 Clive Gordon, the FSA's Head of Conduct Risk made a number of observations in relation to using digital media for financial promotions (within the meaning of section 21 of the Financial Services and Markets Act 2000).
Mr Gordon gave some guidance on how the FSA viewed the use of digital media, noting that particular caution should be taken in relation to the following issues.
• Financial promotions on Facebook and blogs
These are not real-time media and should be treated like other written promotions, so are not automatically exempt from the requirements to describe risk and disclose other key information.
• Risk warnings
It is not acceptable to omit important information just because there is an intention to give this information at a later stage in the sales process where recipients may not go further along that sales process. Promotions should be fair, clear and not misleading taken in isolation or "standalone compliant". Any risk information must be prominent and clearly displayed.
• Image advertising
An image advert must only consist of the name of the firm, a logo or an image associated with the firm, a contact point and a reference to the types of regulated activities provided. Where advertising goes beyond this it will not be simply "image advertising" and the financial promotion regime will therefore apply.
• "One click rule"
There is no "one click rule". Website banners or sponsored search engines must be standalone compliant. Being one click away from required information disclosures does not make the banner or search engine return compliant with the rules on financial promotion.
• Roll-over risk warnings
Roll-over risk warnings are not sufficient on website banner adverts and in most cases will not be appropriate, as many people may still read the advert without hovering over it.
Why this matters:
The FSA's financial promotions unit is clearly directing its energies towards reviewing the practices of businesses using digital media to make financial promotions and has powers to take enforcement action against regulated and unregulated firms that fall short of the standards it expects.
Mr Gordon emphasised that Facebook and other digital media are not exempt from the requirements to disclose risk and other information. Digital media content may and often does stay in circulation for longer than the traditional media channels. For example, a press advert is normally discarded the same day, whereas a social media advert will be available to the public for a longer period of time. It is therefore important to conduct regular reviews of time-sensitive material to ensure that the information in question is up to date.
It is important to consider whether the chosen media channel is a suitable method of promotion for the specific product or service. For example, advertising a complex product on Twitter is very unlikely to be appropriate because of the limited number of characters associated with each "tweet".
Mr Gordon's remarks about stand-alone compliance are particularly noteworthy, as it is common practice to assume that banners can be seen as forming part of a wider financial promotion (like the first and last page of an information memorandum). Many firms will feel that strict enforcement of this rule will be dis-proportionate, but nonetheless the FSA is putting such firms on notice of its expectations. Mr Gordon notes that if the space available for promoting a product is not sufficient in order to comply with all of the relevant regulations on financial promotions, then it should not be advertised in that way.
Links to the texts referred to are below:
