Alongside its recent temporary restriction on the marketing of speculative mini-bonds to ordinary retail clients (see our article on this), the FCA has published guidance for firms approving financial promotions for communication by unauthorised persons.
Firms which approve financial promotions are already required to ensure that those promotions comply with FCA rules, both in presentation and in substance. The recent guidance explains some practical implications of existing requirements, rather than setting out new standards.
The ‘Dear CEO’ letter dated 9 January 2019 indicated the FCA’s interest in financial promotions, followed by their CEO letter dated 11 April 2019 stating that since the previous letter they had since “identified a number of examples where it appears the due diligence carried out on a financial promotion may have fallen well short of the standard we expect.”
What is a financial promotion?
The term ‘financial promotion’ is very widely defined and covers any inducement for the customer to take up the firm’s services, including the firm’s website and suitability reports. It also covers any form of marketing and advertising activities, whether solicited or unsolicited.
Clear, fair and not misleading(COBS 4.2.1 R)
All communications with customers must be clear, fair and not misleading. This is embedded in the FCA principles, the detailed conduct of business rules, and also in the concept of Treating Customers Fairly (TCF).
To be in a position to confirm this, you should consider both:
- the presentation of the promotion (e.g., whether the risk warnings are given sufficient prominence);
- the substance (e.g., the fairness and veracity of claims made and whether these can be substantiated)
Firms should also be aware of the requirements set out regarding the content of promotions and ensure their promotions meet these standards and recording is in place to evidence this.
And remember that approvals should be reviewed as required to ensure that they remain clear fair and not misleading, for example because tax rates or returns have changed since initial approval.
Approving financial promotions for unauthorised persons
Before approving the content of any financial promotion intended for communication by an unauthorised person, firms should analyse, and carry out due diligence regarding, the substance of the promotion. The extent and substance of the analysis and diligence needed to be able confirm that a promotion is fair, clear and not misleading will vary from case-to-case and will depend on the form and content of the promotion. However, it would include:
- undertaking checks on the unauthorised firm, its Directors and business history;
- the commercial viability of what is being promoted;
- whether any quoted returns are reasonably capable of being met;
- whether any claimed tax advantages actually apply, i.e. does the promoted product meet the relevant tax rules.
Social media and digital communications
Many firms increasingly make use of social media and other forms of digital communication to promote their products and services. Firms approving financial promotions for communication through this type of channel should ensure they are familiar with the relevant FCA guidance.