Financial Promotions Case Studies
The Financial Conduct Authority has published a webpage with examples of good and bad practices in financial promotions. These and future case studies help to illustrate the FCA’s written rules in practical terms, particularly useful for newly regulated firms. The regulator’s recent publication of the quarterly data on financial promotions highlights how beneficial this might be, as of the 439 financial promotions reviewed in Q2 2021, 84 needed to be amended or withdrawn. 88% of these related to either website or social media promotions, so the focus within this first set of case studies is on social media and web adverts.
What is a 'financial promotion'?
The term ‘financial promotion’ covers any communication about services and products, and is not limited by method – it covers social media, webpage, radio advert – any publication that ‘invites or induces someone to engage in investment activity that is communicated in the course of business’. If any communication mentions a regulated product or service, it is likely to fall within the rules on financial promotions.
This can be where some firms fall foul of the rules. Although some firms might be under the impression that they do not actively advertise their products, if they have a website or a social media account, it is almost certain that they will have active financial promotions.
Clear, fair and not misleading
A key element of the FCA’s expectations is that information contained within financial promotions be clear, fair and not misleading. This can be a particular hazard for websites, where there is the temptation to try to get across as much information as quickly as possible, meaning that jargon and terms that might be well understood within the industry get past the editors, and make it out to the average audience, who may struggle to understand the terms in the context of their circumstances. Or, in attempting to make sure there is enough information, the website might set out too many examples, confusing the reader.
The FCA take this on in their first mock scenario, which covers common mistakes the FCA see in car finance hire purchase promotions.
The scenario notes that even over social media, adverts for car finance must comply with the Consumer Credit rules, including the requirement to provide a ‘no less prominent’ representative example where a weekly or monthly credit payment is made.
If any incentive is mentioned, such as an ‘instant decision’ then a ‘no less prominent’ representative APR must be included. The firm’s name and postal address must be included.
A common mistake on websites is using multiple representative examples. Only a single representative example should be used to avoid misleading the customer – it should cover all credit agreements expected to be entered into for all vehicles advertised on finance. Any further example could be labelled using another term, for example ‘illustrative example’.
Financial promotions on social media adverts
Social media can easily be overlooked from a compliance point of view, but Facebook, Instagram, and even Twitter can fall under the financial promotions rules. For new firms, this can be a minefield to navigate, and Video 2 focuses on Claims Management Companies – some of the newest firms to FCA regulation - taking the viewer through compliant and non-compliant adverts on Facebook, Google, and Banner Adverts.
The first example is an advert on Facebook. The non-compliant advert does not state that the firm is a claims management firm. Although this statement does not need to be at the top of the advert, the video makes clear it needs to be prominent enough to be obvious to a reader. The advert does not include a statement that customers don’t have to use a claims management company to progress a claim – whereas it should clearly say the customer can make a free claim themselves. The regulator also offers a reminder that nothing within the advert should suggest that claims will have a more favourable outcome with their service.
A Google sponsored advert is up next – with the non-compliant advert mentioning ‘no win no fee’ but failing to detail the fees.
Finally, the banner advert does not state the name of the ombudsman or the compensation scheme that the customer can make their claim to, which it must do.
Future case studies will focus on sectors of the industry that have a poor historical track record with financial promotions, and on firm types that are new to regulation. With the FCA’s focus on preventing consumer harms, financial promotions are likely to continue to be high on the FCA’s agenda.
Our dedicated Credit Lending course covers FCA rules and expectations around financial promotions and credit advertisements. It also teaches all you need to know about pre-contract information and affordability. Priced at just £15 per user, the course is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.
For large groups, we can offer a simplified enrolment service and pricing, simply email Robert.firstname.lastname@example.org.