Following a consultation, the Financial Services Authority has published finalised Guidance on Prominence in financial promotions. The guidance offers examples of poor and bad practice when including statutory disclosures and warnings as to risk etc. However the FSA then includes its own warning not to use the good examples! Rebecca Wakeford reports.
Topic: Financial services
Who: Financial Services Authority (the "FSA")
When: September 2011
Where: United Kingdom
Law stated as at: 28 November 2011
What happened:
In September 2011, the FSA published guidance on the prominence of relevant information in financial promotions (the "Guidance"). The Guidance, which follows an FSA consultation in July 2011, was published in order to capture emerging concerns and clarify some of the inconsistencies across regulated firms, in the interpretation and application of the FSA's requirements in relation to prominence in financial promotions. The Guidance applies to financial promotions across all product and service areas and media types – for example, via the internet, television, press and other printed communications.
The FSA regards prominence of relevant information in financial promotions as a key concept given its requirements that in communication with clients firms must pay due regard to the information needs of their clients, and communicate information to them in a way which is clear, fair and not misleading.
The Guidance defines prominence as 'the state of being easily seen' but acknowledges that prominence is a subjective concept and will depend on several factors, including the target audience, nature of product or services and likely information needs of the average recipient. When considering prominence the FSA has said it will look to the financial promotion as a whole and consider the positioning of the text, background, colour and type size to ensure that the information meets the requirements.
A firm must consider and comply with the Guidance alongside the Conduct of Business (COBS) rules relevant to a firm's business (e.g. BCOBS, ICOBS or MCOBS) and the obligation to treat customers fairly (TCF). The relevant COBS rules may contain more prescriptive regulation relating to features of a promotion such as interest rates, fees, charges, relevant risk statements and other key product information. For example COBS 4.5.2 rules (2) and (4) prescribe requirements relating to how risk is communicated in a financial promotion.
Firms should be aware that consideration of prominence is not confined to risk statements alone, and communicating with retail clients requires firms to ensure information does not emphasis any potential benefits without also giving a fair and prominent indication of any relevant risks. Also, the information presented should not disguise, diminish or obscure important items.
The Guidance provides regulated firms with some examples of good and bad practice taken from various media (including mocked up examples of "good" and "bad" financial promotions) such as:
Examples of good practice
• risk warnings are contained with their own distinct border, thus drawing the reader's attention to them
• both the benefits and the drawbacks of a product are balanced through equally prominent feature statements
All the good practice examples are provided with the caveat that they should not be slavishly copied without considering the context as the decision as to whether a particular promotion is compliant will be reached in each case on its own facts.
Examples of poor practice
• due to their positioning, risk warning can be easily overlooked, resulting in the consumer being taken directly to an application form
• important information, statements or warnings are superimposed across coloured or patterned backgrounds which lessens their visual impact
Why this matters:
The Guidance should provide clarity and assist regulated firms when considering the form and content of their financial promotions. It should be of particular help to anyone preparing and/or clearing financial promotions. The FSA has stressed that a regulated firm must demonstrate a clear understanding of the FSA's expectations in relation to prominence and ensure that it has fully considered the FSA's guidance on prominence alongside the relevant areas of COBS. The examples of good and bad practice are included in the prominence guidance to help firms achieve this.
Any firm found not to be complying with the Guidance, particularly continuing with financial promotions listed specifically by the FSA as demonstrating examples of poor practice, can expect to be targeted by the FSA. Firms who have taken a free approach to interpretation of any specific COBS rules on financial promotions should reconsider their financial promotion copy and any related internal financial promotion preparation and clearance guidelines to ensure the principles of the Guidance are taken into account and implemented.
The FSA has reiterated that it will take action against firms who do not show due regard to its prominence requirements. Firms, who do not comply, currently risk a fine or disciplinary action from the FSA. When the FSA's powers are transferred to the Financial Conduct Authority ("FCA") in 2013, the FCA will be able to remove a misleading promotion immediately and publicly name the firm in breach. There are concerns in the financial services industry, that this interventionist approach is too powerful given the subjective nature of prominence and the reputational damage that being publicly named and shamed may cause a firm. However the FSA has defended its case, stating that a tough stance is needed in order to further the FSA's consumer protection remit.
Further information, including links to the Guidance and the original consultation can be found here.
