Financial firms should review digital promotion procedures ahead of new regulator powers

Clive Gordon, head of the conduct risk department with the Financial Services Authority (FSA), was addressing poor practices and common myths surrounding digital media when used to promote financial products. In a speech, he also addressed the proposed power new compliance regulator the Financial Conduct Authority (FCA) will have to ban misleading financial promotions, and urged firms to review their existing compliance procedures.

Gordon said that the "mantra" which should be borne in mind by firms when devising promotional material should be "fair, clear and not misleading". He said that although the FSA's rules were "generally media-neutral" – focusing on the content of the advertisement rather than the methods used to promote it – the regulator was "continuing to see examples where the customer's best interest is not at the heart of digital promotions".

"For whatever reason, too many firms seem to assume that because the medium is different then the rules must be different too," he said. "Let me say again that this is not the case. Facebook and blogs are not real time media and are not exempt from requirements to describe risk and disclose other key information."

The FSA does not adopt an "absolute definition" of what comprises digital media, Gordon said, but typically uses the term to describe channels including social networking websites, forums, blogs, Twitter and smartphone applications. Digital media was "very much on [the regulator's] radar, he said, and the FSA will "continue to monitor new and existing promotions".

Gordon said that the FSA had identified certain "common poor practices" during its "routine monitoring" of digital media, while noting that certain "regulatory myths" had arisen among firms using these tools.

'Image advertising' consisting only of the name of the firm accompanied by a logo or image associated with it, a contact point and a reference to the types of regulated activities provided by that firm, is typically exempt from some of the rules surrounding financial promotions. Gordon said that there was a "lack of understanding" among firms regarding image advertising online. "Using a digital medium does not make everything an image advert", he said, adding that the financial promotions rules applied to any advertisement that went beyond the strict requirements.

It was not acceptable, he added, for firms to omit important information or statements about risk from online advertising "just because you intend to give it later in the sales process". Adverts must be what the regulator calls 'standalone compliant', he said; "fair, clear and not misleading" on their own terms.

One of the "regulatory myths" the watchdog had come up against was the so-called 'one-click rule', implying that website banner adverts or sponsored search engine results would somehow be compliant if the consumer could access risk information within one click. In addition, he said, 'roll over' warnings that appear when a user hovers over a particular advertisement with their mouse or cursor, were not sufficient or appropriate on website banner adverts as "many people may still read the advert without hovering over it".

Under proposed legislation the FCA, which will take on the conduct and compliance functions of the FSA once it is dismantled as a result of the Financial Services Bill next year, will be given the power to ban misleading promotions immediately or prevent them from being used in the first place. It will do so in a "transparent" way, Gordon said; publishing the promotion and its reasons for banning it as a deterrent to other firms who may be tempted to try a similar promotion.

"The FCA will be ready to take faster and more effective action from the first day we get these powers," he said. "This doesn't mean, of course, that we will use them on day one, but if you were thinking of reviewing your systems and controls for compliance with our financial promotion rules, now would be a good time to do so."

Firms should consider that digital media may stay in circulation for longer than traditional media channels, he said, and carry out regular reviews to ensure that information in the promotion is up to date. They must also ensure that risk information is prominent and clearly displayed, with each promotion meeting all the relevant rules for standalone compliance regardless of where and how it appears. This could mean that certain channels which limit the amount of space available may not be suitable for more complex products.

"If you can't make the promotion compliant within the allocated space, you can't advertise," he said. "For example, Twitter limits the number of characters that can be used, which may be insufficient to provide balanced and sufficient information."