Presentation on theme: "Journey to the FCA: Financial promotions banning power"— Presentation transcript:
1Journey to the FCA: Financial promotions banning power
2Agenda The importance of financial promotions The financial promotions teamWhat is a financial promotion?Some current financial promotion issuesThe FCA approachFinancial promotions banning powerCase studies
3Why are financial promotions important? Financial promotions are a firm’s shop windowAsymmetry of information and powerConsumers rely on them when shopping around for financial productsyou can’t test-drive them… and those products are important for the financial well-being of consumersIn the financial services sector, financial advertising is a firm’s shop window. Just as consumers go ‘window shopping’, they use financial advertising to shop around - this is particularly true of the internetThe content of a shop window not only tells you about the goods for sale; it speaks volumes about its business in its first contact with the consumer. Similarly, an advert’s content can offer strong clues as to how fairly your firm treats your customers.Firms hold all the cards when it comes to knowledge about the product – what it can and can’t do.Financial products are intangible, so descriptions of their features become particularly important – it’s not possible for consumers to ‘test-drive’ them. With long-term products, their effects may not be felt for a number of years.Significant sums of money are involved. Consumers’ financial stakes in these products are significant, particularly in the areas of pensions and mortgages. The performance of these products is therefore fundamental to consumers’ financial health. The expectations raised by advertising and how far these are met are crucial for consumers.Unlike some other regulators around the world, we do not pre-vet or approve promotions. So, even though non-compliant promotions are in circulation, this does not exonerate other firms from seeking to comply. We are, of course, conscious of the need for a level playing field between firms, something we strive to enforce and maintain.
4Consumers depend on the products meeting their expectations Products meeting expectations is one of the TCF outcomes.Differences between products might be subtle, and not very obvious – promotions need to reflect that and inform customers clearly.
5The financial promotions team Monitor a variety of media across the UKConsumer hotline - complaintsCasework – deal with non-compliant financial promotionsThematic work – identifying and dealing with product, sector or media type risksWe are a dedicated team who provides expertise in on financial promotions. Our work covers a wide and varied marketing techniques. So our approach to monitoring and supervising financial promotions needs to be just as diverse.Proactive monitoring: most media are covered: TV, Radio, Digital, Outdoor – on buses, in branch, direct mail – video games. We subscribe to an industry database, which gives us monitoring ‘reach’ – there is a powerful search facility.We also have a consumer hotline where complaints about adverts can be made.Cases: We adopt a risk-based approach and typically only take forward MH and H cases. To give you an idea of volumes, we review between promotions a month, taking forward about cases a month.Thematic –we regularly conduct thematic work with the aim of assessing or mitigating risk in an area. By way of an example, the type of thematic work we have on the go at the moment are price saving claims of insurance products, marketing in a foreign language, disclosure and digital media.
6What is a financial promotion? “A financial promotion is an invitation or inducement to engage in investment activity”Just a brief reminder about a key element of a financial promotion: an invitation or inducement to engage in investment activity. [Can remind if necessary the audience that ‘investment’ includes mortgages, insurance and banking products as well.]There is further guidance in PERG 8.We have seen cases where a firm may be seeking to do some ‘brand’ advertising, or simply convey some information – but if they have an element of invitation or inducement, they will be fin proms.Typically also, these cases go beyond the definition of ‘image’ advertising – we’ll look at that in the next slide.In all these cases, the overarching principle is that all client communication and financial promotions must be clear fair and not misleading.
7Are these financial promotions? We did a quick search for spread betting: these are the results that came up.Q: Given the scope of our rules, would you say these are financial promotions?A: most of them are. If you look at PERG – is it an invitation or inducement? Take the second result as an example – ‘1pt & low margins’ for those of you who are familiar with spread betting – this is considered a good thing. Also, underneath, it says apply and get up to £1000 bonus – sounds pretty enticing to me!Image advertising – communication consisting only of the firm name, a logo or associated image, a contact point and a reference to the types of regulated activities the firm provides and its charging structure
8Are these financial promotions? Whilst tweets can be financial promotions, in the case of the first one, Mortgage Strategy is a publication and benefits from an exemption under the FPO. The last one is also not a fin prom, but it could have been depending on what capacity the tweeter was acting in e.g. if he/she was an advisor you could argue to was trying to promote but in this case the tweeter works for a PR company.We can not always determine on face value whether a promotion is a financial promotion as defined under FSMA.So the first hurdle is to determine whether it is financial promotion. Once this has been done, the rules apply.
9Some current financial promotion issues Media neutralbanners can be a form of promotionSocial media - you can use social media such as Twitter and FacebookStand-alone compliancethere is no ‘one click’ ruleProminence‘roll over’ risk warnings are not adequateDoes the customer qualify for the offer/deal?you must clearly present any ‘show-stoppers’These are some common high level issues currently.[Talk through bullets on slide more or less verbatim]Conditions: Show-stoppers include minimum/maximum amounts, fees etc.
10“To make markets work well so consumers get a fair deal” The FCA approach“To make markets work well so consumers get a fair deal”The fair deal is a balance between ensuring consumers should get financial services and products that meets their needs from firms they trust, but equally allowing firms the room to be to creative, to innovate and to growThe six retail consumer outcomes that were set out in the Treating Customers Fairly (TCF) initiative remain core to how we expect firms to treat their customers.We do not believe there is a clear divide between ‘retail’ and ‘wholesale’ markets. Our approach will recognise that activities in retail and wholesale markets are connected and that risks caused by poor conduct can be transmitted between them. Example of structured products migrating from wholesale to retail.We are going to be walking in the shoes of your customers; this means we will be taking account of who consumers are, their capability, experience and needs. We will also be looking at how consumers behave by drawing on insights from Behavioural Economics about how consumers approach financial choices, process financial information and mistakes they are prone to, and will use this as a lens to interrogate how products are being pitched to consumers and how they are likely to respond.[The TCF Outcomes, in case needed for reference:Outcome 1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.Outcome 2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.Outcome 3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.Outcome 4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.Outcome 5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.Outcome 6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.]
11The FCA approach ‘Journey to the FCA’ document details: Our current thinking on how the FCA will operateOur expectations of the industryHow the FCA will regulate firmsHow the FCA will be differentDetail of the new FCA powers, including product interventionKey points from the document:We will continue to focus on ensuring efficient, stable, fair, clean and resilient markets. We will carry forward our approach of credible deterrence, particularly but not exclusively in the area of abusive market behaviours. We will use our ‘radar’ to anticipate market developments, and act accordingly.Through our prudential supervision [can expand on roles of FCA and PRA…], we will not look to reduce the probability of a firm failing, but instead focus on reducing the impact of this on customers and ensuring that client assets are protected.This is a consultation. We welcome your views and comment on the document.
12Financial promotions - Repeat breaches FCA will be more intrusive and consumer-focusedRepeat breachesSIF attestationDisciplinary actionRepeat breaches:This really formalises our existing practiceIt’s better aligned with the FCA approachRepeat breaches within a period of time such as one year will trigger robust action:A SIF person will be required to attest to the soundness of the firm’s systems and controls, and to assure us there will be no further breachesIf there are then further breaches, there is the possibility of enforcement action not only against the firm, but against the SIF personOf course in serious cases, there could be earlier enforcement action – but all cases will be assessed and dealt with proportionately
13Financial promotions banning power The Financial Services Bill includes the power to ban financial promotions and publicise details of the action takenThe publicising of the ban is intended to send a clear message to the industryThe power is intended to be flexible, to deal swiftly with misleading advertising.The banning power gives us the means to send a clear message to the industry as a whole ( not solely to the issuer of the promotion); provide greater transparency around the action we take; and help consumers shop around for the best deal
14How it will work in practice We will ‘give a direction’ to authorised firms on their financial promotions or those they approve on behalf of unauthorised firmsFirms can come back to us if they think we are making the wrong decisionWe will then decide whether to confirm, amend or revoke our directionThe power of direction will enable the FCA to remove promotions immediately or prevent them being issued, without resorting to an enforcement process – this is a supervisory tool [can expand on the distinction from enforcement…], but the banning power and enforcement could be used together in cases where there are underlying issues with the firm, as well as with the promotion.Our process will be robust: it will involve several stages of review, by different staff at the FCA, with legal advice, before sign-off by a designated decision-maker who was not involved in the original investigation/assessment.We will be consulting on an amended DEPP which will place decision-making for the banning power under ‘executive procedures’ - these include the independence of the decision-maker as outlined above.
15When do we plan to use the power To ban the ‘worse case’ promotions but also where there is a risk of other firms following suitWe will not always measure harm to consumers in terms of actual or potential financial detriment, but will consider the impact of misleading information on consumers’ ability to make informed choicesWe will be ready to use our powers from Legal CutoverWe will use the power to deal with what we call ‘contagion’ risk – we will still deal with probably the great majority of cases as we do currently i.e. by a direct approach to the firm.We’ve spoken already about how consumers use fin proms to shop around, so we will look to counter-act ‘information detriment’ as well as the possibility of more immediate financial detriment.
16Publication of a banned promotion We have been challenged about the level of transparency we provide on the actionsPublication will serve as a good educational tool for firms to better understand our rulesIt will allow us to set out clearly our expectations on financial promotions in a way which has not been possible beforeIt will serve as a deterrent to firms who intend to mislead customers or do not pay enough attention to ensuring compliance with the financial promotions rules[LAST SLIDE]Our financial promotions regime has in the past been a target for challenge on transparency, compared to e.g. the Advertising Standards Authority.Up until now, we have used both anonymised ‘real-life’ and purely fictitious case studies to illustrate the guidance we have issued on financial promotions, but these have lacked the specifics and the vividness of actual advertising.We can make our expectations clearer for firms, consumers and other stakeholdersAs well as transparency and education, clearly there is also deterrence[CONCLUSION]We see the banning power, with its accompanying power of publication as a step change in how we regulate fin proms, and a distinctive new feature of the FCA approach.