How Compliant are your Financial Promotions?

With services from trading apps to cryptoassets being promoted anywhere from YouTube to the sides of London buses, it is no surprise that the Financial Conduct Authority (FCA) recently published CP22/2, a consultation paper on the promotion rules relating to high-risk investments. These rules are under scrutiny not just because of increased interest in investment-related activity, but also because of the wide-reaching nature of promotions shared on online platforms and social media.

The effect of social media on all walks of life is profound and was something that the FCA recognised back in 2015 when it issued its still current Finalised Guidance on the subject: FG15/4: Social media and customer communications. Although this was published some time ago, it would be prudent for firms to refamiliarise themselves with the key points of FG15/4 given the regulator’s increased focus on financial promotions.

The following is a summary of FG15/4, highlighting key points for firms to incorporate into their promotions processes:

FG15/4 – Definitions

  • The FCA states that “any form of communication (including through social media) is capable of being a financial promotion, depending on whether it includes an invitation or inducement to engage in financial activity.”
  • Social media is defined as “websites and applications that enable users to create and share content or participate in social networking” (Oxford Dictionaries 2013). These include:
    • Blogs and microblogs (e.g. Twitter)
    • Social and Professional networks (e.g. Facebook, LinkedIn, Google+)
    • Forums (e.g. Reddit)
    • Image- and video-sharing platforms (e.g. YouTube, Instagram, Tik Tok, Pinterest)
  • A financial promotion only occurs if it is ‘in the course of business’ with a commercial interest on the part of the communicator (PERG 8.5.2G.)

‘Clear, Fair, and Not Misleading’

Any financial promotion on social media needs to be identifiable as such either through a direct statement or through its context , and under Principle 7 (found in PRIN 2.1) all promotions need to be “clear, fair, and not misleading”. As social media posts can reach groups beyond a firm’s intended audience, firms should consider if their promotion will meet the “clear, fair, and not misleading” benchmark regardless of the viewer and remember that any promotion is shared or forwarded the responsibility still lies with the communicator.

To comply with the policy, the following actions may be relevant:

  • Differentiate clearly between personal and business views when using personal social media accounts as an individual who may have connections to a company.
  • Take steps to have appropriate labelling and target communications according to intended and potential audiences.
  • Review re-shared content through a compliance lens; posting something shared by others can also be considered a financial promotion depending on the content.
  • Ensure that each communication can comply with relevant rules on a standalone basis; do not expect customers to see a series of promotions even if that is what was intended by design.

Additionally, firms should note that there are sector-specific requirements for prominence, with this prominence being looked at in context of the whole promotion. These specific requirements can be found in relevant sourcebooks, e.g. ICOBS 2.2 for insurance firms.

Financial promotions – Risks warnings

Firms need to be conscious that their promotions do not just push the benefits and understate the risks. Instead, all campaigns should be balanced and provide the information needed for consumers and investors to make informed decisions. Therefore, promotions must come attached with relevant risk warnings and other statements that may be needed in the decision phase for consumers.

The following actions may help balance promotional materials with the need for risk warnings:

  • Ensure ‘signpost language’ is stand-alone compliant and in line with the “clear, fair, and not misleading” principle.
  • Avoid emotive language that could influence a decision to engage or generate traction with false statements.
  • Avoid sweeping statistics that need representative examples to add context and prove functionality.
  • Consider using clearly signposted links to sources of more information in order to accommodate character limits
  • Evaluate the constraints of the platform on which the promotion is presented and whether these could lead to non-compliance. (These must be considered in the design phase of the promotion and not used as an excuse to be non-compliant.)

Image Advertising

The FCA Handbook defines image advertising as “a communication that consists only of one or more of the following: (a) the name of the firm; (b) a logo or other image associated with the firm; (c) a contact point; and (d) a reference to the types of regulated activities provided by the firm, or to its fees or commissions.” Different sectors interact with image advertising differently:

  • For investments, image advertising is exempt from most of the detailed financial promotions rules and guidance in COBS 4, but it will still need to comply with the high-level ‘” clear, fair, and not misleading” rule.
  • For mortgages, MCOB 3A contains a specific exemption for financial promotions that comply with MCOB 3A.1.9R.
  • For insurance and banking, there is no equivalent provision for image advertising in ICOBS 2 or BCOBS 2 and firms cannot rely on exemptions.
  • For credit products, CONC 3 applies only to a limited extent to financial promotions or communications falling within CONC 3.1.7R.

Compliance Best-Practice: Authorisation and Record Keeping

  • Establish and implement appropriate systems to sign off digital media communications, from someone with appropriate competence and seniority.
  • Keep a record of any significant communications.
  • Note that the conduct of business rules surrounding traditional media record-keeping will also apply to that of digital and social media.

How Complyport can help

At Complyport, we support firms by providing guidance & advice on the FCA’s financial promotions rules and regulation, and by reviewing specific proposed financial promotions for firms on a regular basis.

Additionally, Complyport helps firms understand and comprehend the impact that new, upcoming, and proposed regulatory changes will have on their business. We can undertake gap analysis and impact assessments, reviewing firms against regulatory changes and providing a detailed report and roadmap that outlines the actions needed to meet the new rules.

To discuss how Complyport can support you, please contact us now to book in a free consultation.

About Complyport

Complyport is the City’s market leading consulting firm supporting the UK financial services industry for over 20 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.

Complyport advises and assists firms to become authorised and to comply with the rules and requirements of regulators on an ongoing basis. Our vision is to be there for our clients every step of the way, helping them change, grow, and excel through expertise, insight, and innovation, and in so doing to become our clients’ most valued supplier and trusted advisor.

We have successfully assisted over 1000 firms to become authorised with the FCA and EU and are providing regulatory support to over 600 regulated firms on an ongoing basis globally. With presence in the UK and EU, as well as via our Associates Network, Complyport can assist firms across multiple jurisdictions.

Complyport’s multidisciplinary consultants possess deep expertise in their field, having acted in FCA skilled person reviews, as expert witnesses in legal cases and as expert investigators for firms or their legal advisers.

Day to day, we conduct audits and reviews of a firm’s products, processes, policies, and procedures to identify scope for business, to determine the impact of regulatory developments and to verify compliance with local regulations. Complyport can also assist firms by providing personnel to cover all the key compliance functions including resourcing individuals to be registered as your Compliance Oversight Function (SMF16) and/or Money-Laundering Reporting Officer (SMF17).

Our clients tell us we live our values; we are driven, agile and collaborative.