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The FCA has issued a reminder to CEOs of the importance of delivering clear, fair and not misleading financial promotions and marketing material. Many were surprised at the content of the ‘Dear CEO letter’ which was published on 9 January 2019.
As a number of firms will attest, the FCA has remained vigilant in the area of financial promotions. But this is the first time in more than three years that it has felt the need to put the promotion of financial services and products so firmly back on the regulatory agenda for all. MiFID II brought with it the implementation of new rules in PROD, which cover product governance. And having appropriate promotional and marketing material should be closely aligned to your product distribution strategy.
Promotions must set out scope of regulated activity
The current area of focus for firms is a reminder that promotions must be fair, clear and not misleading. In meeting this requirement, firms should also set out the extent of their business that is regulated. The FCA has determined that some firms, which undertake both regulated and unregulated activity, are issuing promotions which suggest that all of the activities undertaken are regulated by the FCA and / or the PRA. The FCA comments that it’s
‘unacceptable for firms, which are regulated for some of their business, to market unregulated investments by implying to customers that all their business is regulated’.
It is not clear why the regulator decided the letter was necessary this month but there have certainly been recent issues. In December, for example, the FCA issued a notice that it had directed London Capital & Finance plc to withdraw its marketing materials in respect of a fixed rate ISA and a ‘mini bond’. It’s clear from the FCA website that the act of issuing a mini-bond is not a regulated activity. In stating on the financial promotion for the mini-bond that the firm is regulated by the FCA, that promotion could be construed as not sufficiently fair, clear or not misleading.
Claims Management Companies should pay heed
It’s also worth noting that the FCA will become responsible for the regulation of Claims Management Companies on 1 April 2019. These companies are in the process of notifying their intention to register for Temporary Permissions and it is only after the intention has been registered that the process to become authorised by the FCA will begin. If you’re a Claims Management Company, then you need to be mindful that presenting yourself as an FCA regulated entity prior to being authorised is a breach of FCA rules.
Although the Dear CEO letter is aimed at all firms, given the regulatory concerns in respect of Claims Management Companies and the potential for their interaction with vulnerable clients, this is clearly a potential area of scrutiny from the regulator. Even if there is an intention to become an authorised entity, claiming this in promotional material now would not be considered ‘clear, fair or not misleading’.
Taking ‘reasonable steps’ under SM&CR
This letter should serve as a timely reminder that firms still need to be vigilant in this area to avoid falling foul of regulatory expectations. The Senior Manager and Certification Regime will help focus the attention of Senior Management on ensuring their businesses are run responsibly. Also, the concept of personal accountability will introduce the requirement to consider how you evidence that you took reasonable steps to deliver compliant financial promotions.
Creating compliant financial promotions isn’t straightforward and it can be difficult to achieve the right balance between the sales messages and the obligation to meet regulatory requirements and disclose the key product information in a manner that is not potentially misleading. Given some of the complex products that are available now this is a particular challenge. With this in mind it is an opportune time to revisit the approach being taken when financial promotions are being prepared.
We can help
Whether you need help with reviewing specific promotional activities or channels, or are looking for a broader review of your promotions regime, Bovill can help. Get in touch to find out more.
