The post How Compliant are your Financial Promotions? first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>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.
The post How Compliant are your Financial Promotions? first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>The post CP22/2 – FCA to Strengthen Financial Promotions Rules to Protect Consumers first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
]]>This has led to the FCA publishing ‘CP22/2: Strengthening our financial promotion rules for high-risk investments, including cryptoassets’, which builds on questions asked in Discussion Paper DP21/1 about how the FCA could strengthen financial promotion rules. The proposals outlined in CP22/2 are a key part of the FCA’s Consumer Investment Strategy, which addresses the harm from consumers investing in high-risk investments that do not match their risk tolerance. The Strategy sets out the FCA’s 3-year plan to address harm in the consumer investment market by achieving a target of a 50% reduction in the number of consumers in high-risk investments by 2025.
Additionally, the proposals also complement the work by HM Treasury to improve the financial promotions regime, including the proposed new gateway, section 21 (s21). S21 involves authorised firms who approve the financial promotions of unauthorised firms (‘s21 approvers’), extending the regime to promotions of qualifying cryptoassets and, importantly, consulting on reforms to the longstanding exemptions for high-net-worth and sophisticated investors.
In CP22/2, the FCA proposes to make changes in the following areas:
- Classification of high-risk investments
- The consumer journey to high-risk investments
- Strengthening the role of firms approving and communicating financial promotions
- Applying the financial promotion rules to qualifying cryptoassets
Background
The FCA states that high-risk investments are high-return investments “suitable for experienced investors who understand the risks and are prepared to lose all of the money invested.” The investments referred to are those subject to existing marketing restrictions under the FCA’s rules, including: investment based-crowdfunding (IBCF), peer-to-peer (P2P) agreements, other non-readily realisable securities (NRRSs), non-mainstream pooled investments (NMPIs), speculative illiquid securities (SISs), and cryptoassets when they are brought within the financial promotion regime.
Who CP22/2 applies to
- Consumers, consumer organisations, and intermediaries distributing investments to consumers (including IBCF platforms)
- Authorised firms that:
- “approve financial promotions for unauthorised persons (section 21 approvers), whether for high‑risk investments or otherwise”
- “communicate financial promotions relating to investment business”
- Issuers of non‑mainstream pooled investments, speculative illiquid securities and non‑readily realisable securities
- Peer‑to‑peer (P2P) platforms
- firms operating in the cryptoasset market
- trade bodies for the IBCF, P2P, and cryptoasset sectors
The FCA notes that the consultation will also be of interest to:
- authorised firms, investment companies, and trade bodies in the consumer investments sector
- issuers of other types of investments
- financial advisers
- asset managers “with experience of managing illiquid, long‑term assets”
- potential investors in long‑term asset funds
Classification of high-risk investments
Many firms have experienced difficulty navigating existing market restrictions and understanding which ones apply to them. As a result, the FCA intends to rationalise the way it categorises high-risk investments in COBS 4 under the terms ‘Restricted Mass Market Investments’ (RMMIs) and ‘Non-Mass Market Investments’ (NMMIs); SIS rules will be revisited later in 2022. The diagram below shows the summary of the new categories:
The consumer journey
The FCA is concerned that too many consumers are just ‘clicking through’ and accessing high-risk investments without understanding the risks involved. The FCA’s existing marketing restrictions are intended to ensure consumers only access high risk-risk investments knowingly, but consumer research shows the FCA’s approach is not working as well as it should. The FCA proposes a package of measurements to strengthen it by making changes to the following areas:
- Strengthening risk warnings, including prominence
- Banning monetary or non-monetary inducements to invest
- Introducing positive frictions for first time investors with a firm
- Improving client categorisation for high-net-worth, sophisticated, or restricted investors
- stronger appropriateness tests for RMMIs
Equally importantly, the FCA is proposing that firms maintain records to demonstrate the effect of these proposals. This includes data on whether consumers proceed to access the investment after each intervention, whether they click the link in the risk warnings, and the outcomes of appropriateness assessments and client categorisation. It is not expected that this data will be routinely reported to the FCA, but the expectation is that firms will be able to report it if requested to do so.
Strengthening the role of firms approving and communicating financial promotions
The FCA wants to strengthen the role of s21 approvers as they play an integral role in enabling unauthorised issuers of high-risk investments to reach consumers. The FCA wants to develop a robust regime to complement the proposed s21 gateway which, when implemented, will hold s21 approvers to high standards. This will ensure approving firms have the relevant expertise in the promotions they approve and the overall quality of financial promotions in the market is high.
Of particular interest is the expansion of the approver’s relationship with the firms for whom they approve promotions. The FCA proposes to require s21 approvers to have a continuing relationship, with those for whom they approve promotions, for the life of the promotion and to actively monitor the promotion after approval for any changes that might mean the promotion no longer complies. This goes beyond the current requirements in COBS 4.10.2R(2).
Applying the financial promotion rules to qualifying cryptoassets
HM Treasury has confirmed it intends to extend the scope of the financial promotion perimeter to include qualifying cryptoassets. The FCA is consulting on how it will categorise the cryptoassets once they are brought within the financial promotion regime. The FCA intends to apply the same rules to cryptoassets as they do with NRRS and P2P agreements (referred to as RMMIs). Nevertheless, the FCA does not propose that it should be possible for ‘Direct Offer’ Financial Promotions of qualifying cryptoassets to be made to self-certified sophisticated investors.
Financial promotions relating to cryptoassets will need to comply with the existing financial promotions rules in COBS 4. This includes both the requirement for promotions to be clear, fair, and not misleading, and the proposed changes in the consumer journey into high-risk investments.
CP22/2 – Next steps and timeframes
The feedback for the consultation closes on 23 March 2022 ; the FCA is expected to publish the Policy Statement and final rules in summer 2022. Firms will have three months from the publication of the final rules to comply with the new requirements for the consumer journey and s21 approvers. For requirements relating to cryptoasset promotions, the rules will apply from the date qualifying cryptoassets are brought within the financial promotion regime.
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.
Complyport is also a specialist in assisting cryptoasset firms with Crypto-Asset Service Providers Registrations with the FCA. We can project manage the registration application and assist you with your ongoing compliance and financial crime support.
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.
The post CP22/2 – FCA to Strengthen Financial Promotions Rules to Protect Consumers first appeared on Complyport - Your Trusted Partner in Governance, Risk, Compliance & Technology .
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