Financial promotions play an important role in the UK financial sector, allowing businesses to advertise their products and services to potential customers. However, these promotions can also carry a high risk of mis-selling and exploitation, with customers sometimes falling victim to overly strong advertising and misleading offers made by financial services companies. The potential damage that can be caused to customers has created a need for robust regulation to ensure that all such activity is carried out in a responsible manner. This article explores the scope of the current regulation of financial promotions in the UK, and why these regulations are necessary.
Financial promotions are advertisements and other marketing activities used by businesses to promote their products and services. This includes various forms of media, such as TV, radio and internet advertising, as well as leaflets, brochures and other written materials. In the UK, the regulation of financial promotions is overseen by the Financial Conduct Authority (FCA). The FCA’s rules and guidance provide businesses with clear guidelines on how to advertise and promote their financial products and services in a responsible manner. They apply to all businesses, including banks, insurers, investment firms and other financial services providers. The scope of the regulation covers both the content of financial promotions and the manner in which they are distributed.
The rules and guidance are set out in the Financial Services and Markets Act 2000 (FSMA), the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (FPO), and the Financial Conduct Authority’s (FCA) Handbook.
The Financial Services and Markets Act 2000 (FSMA) is a landmark piece of legislation in the UK, aimed at establishing a regulatory framework for financial services and markets. Its main focus is the protection of consumers, the promotion of competition, and the maintenance of market integrity. It established the Financial Services Authority (FSA) as the single regulator for the financial sector, which was later replaced by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA) in 2013. The act also empowers the FCA to take enforcement actions, grant licenses, and set standards for financial institutions to ensure transparency, stability, and consumer protection in the industry.
The FSMA (Financial Promotion) Order 2005 (FPO) is a statutory instrument in the UK designed to regulate financial promotions. Its primary focus is to ensure that any communication made by firms to promote financial products or services is clear, fair and not misleading. The FPO provides exemptions to certain types of communication, allowing them to be made without the need for FCA authorisation. It also clarifies the requirements for approval and standards for financial promotions, helping to protect consumers from misleading advertisements and maintain the integrity of the financial services industry.
The Financial Conduct Authority’s (FCA) Handbook is a comprehensive guide containing the rules and guidelines that govern financial services firms operating in the UK. Its main focus is to establish a regulatory framework that ensures consumer protection, market integrity, and fair competition. The Handbook is divided into various sections, including conduct of business, prudential standards and disclosure requirements. It serves as a reference for firms to understand their obligations, while also providing guidance on compliance and best practices. The FCA regularly updates the Handbook to reflect changes in legislation, industry developments and emerging risks.
It is perhaps helpful to see the kind of financial promotions that have broken the law in the UK.
- In 2018, the FCA found that a payday loan company, 24/7 Moneybox, had broken the law by sending out unsolicited text messages to potential customers. They ruled that the company had broken the Consumer Credit Act 1974 and the Financial Services and Markets Act 2000.
- In 2016, a UK insurance company was fined £75,000 for a financial promotion that breached the FCA’s rules. The promotion was a radio advertisement offering a ‘free gift’ to customers who purchased a life insurance policy. The advertisement did not clearly state that the gift was subject to certain conditions and was only available for a limited period of time.
- In 2018, a major UK bank was fined £16.9 million by the FCA for breaking UK rules on financial promotions. The bank had sent out emails to customers which contained misleading information about the returns they could expect from a particular investment product. The emails failed to highlight the risks associated with the product and did not include information about past performance.
Further developments
The FCA has recently announced stronger rules to protect consumers from rogue financial promotions. The new measures announced in December 2022 clamp down on illegal, unfair or misleading financial marketing and outline new checks for those firms which want to approve financial promotions. The new measures will require firms to demonstrate they have the right expertise for the promotions they wish to approve.
Under current legislation, any FCA authorised firm is allowed to approve financial promotions on behalf of other firms who are not authorised by the regulator. The changes will require authorised firms to undergo new screening checks before they are allowed to approve financial promotions, giving the FCA greater oversight to stop harm before it occurs. Firms will also be required to regularly report back to the FCA on financial promotions they have approved, helping the FCA crack down on rogue adverts.
These proposed reforms should ensure that the FCA can act quickly to put a stop to harmful financial promotions communicated by unauthorised firms, including in areas such as high-risk investments and ‘Buy Now Pay Later’. They build on the FCA’s recent work on strengthening rules around advertising for high-risk investments and being more assertive in removing misleading adverts. Addressing concerns over the ease and speed with which people can make high-risk investments is a key element of the FCA’s Consumer Investment Strategy, which aims to give consumers the confidence to invest and reduce the number of people who are investing in high-risk products that are not aligned to their needs.
The regulation of financial promotions in the UK is an important tool for ensuring that businesses advertise and promote their products and services in a responsible manner. The FCA’s rules and guidance provide clear guidelines for businesses on how to advertise and promote their products and services in a way that is not misleading or exploitative. They serve as a strong body of protection for the public in their interaction with all businesses.