Firms using new media channels such as Twitter and Facebook to advertise financial services and products still need to abide by the rules on financial promotions, the Financial Services Authority (FSA) has warned.
Financial promotions can be communicated by various means. Traditionally, firms have used product brochures and advertising in magazines and newspapers, on radio, TV and websites, and by mailshots and written correspondence.
More recently, however, they have increasingly been using social networking websites, forums, blogs and iPhone applications.
In 2010, the FSA surveyed approximately 30 Twitter and Facebook pages and a variety of online forums where insurance, investments, investment advice and mortgages were being commented upon and discussed.
Many of these fell within the definition of financial promotions but only a few were applying the relevant rules. Particular areas of confusion seemed to be the differences between financial promotions and "image advertising".
What is a financial promotion?
A financial promotion is where a person, in the course of business, communicates an invitation or inducement to engage in investment activity (section 21 Financial Services and Markets Act 2000). A communication that merely informs or educates will not normally be a financial promotion.
Detailed rules on financial promotions are set out in the FSA Handbook at COBS 4 (investment business), BCOBS 2 (banking), ICOBS 2 (insurance) and MCOB 3 (mortgages).
The FSA applies its financial promotion rules in a media-neutral way, focusing on the content of the promotion rather than the medium used to communicate it. It will be looking to see whether there is an "invitation or inducement to engage in investment activity", rather than the method of communication.
If a communication is not a promotion, it will still be covered by the FSA's high-level rules which provide that all communications with clients must be fair, clear and not misleading. Examples of non-promotional communications include annual statements, responses to queries, complaints or general correspondence.
What is an image advertisement?
An image advertisement is a communication that consists of one or more of the following: the name of the firm; a logo or other image associated with the firm; a contact point; a reference to the types of regulated activities provided by the firm or its fees or commissions.
Depending on which sourcebook applies, image advertisements may be exempt from some of the financial promotion rules.
Image advertising for investment products, for instance, does not have to comply with most of the detailed rules and guidance in COBS 4, but will still need to comply with the high-level "fair, clear and not misleading" rule. Mortgage products, too, benefit from an exemption in MCOBS 3.2.5R.
But there is no equivalent exemption for insurance products. Firms advertising insurance must, therefore, comply with the financial promotion rules in ICOBS.
The FSA warns firms not to assume that because they are using new media channels it will be an image advertisement and the exemptions will apply. If a communication goes beyond the definition of image advertising in any way, it will need to comply with all of the relevant financial promotion rules.
New guidance for tweet promotions
Firms offering financial promotions through Twitter should be aware of the conclusions the Advertising Standards Authority (ASA) has reached in a recent ruling in respect of tweets sponsored by Mars Chocolate UK Ltd.
The ASA has suggested that individual tweets which form part of a series do not need to be individually labeled as marketing communications, so long as it is clear from the overall impression that each tweet forms part of a marketing communication.
The ASA outlined two factors that would be taken into account, whether or not the tweets are made in "quick succession" and whether or not the hash-tag '#spons' has been used within at least one of the tweets. The hash-tag '#spons' is customarily used to indicate that a tweet is of a paid-for nature.
The FSA's recent guidance however clarifies that prominence plays a key role in ensuring that a communication is clear, fair and not misleading. It is therefore not certain that the FSA would take a similar approach to that of the ASA in not requiring individual tweets to be labeled as marketing communications.
How to get it right
- Check the relevant conduct of business sourcebook in the Handbook - make sure you have effective systems and controls in place to do this
- Be aware that new media may date more quickly than traditional media channels. Carry out regular reviews of your existing communications to make sure the information is up-to-date and compliant with the relevant financial promotions rules
- If a communication does not comply, withdraw it as soon as possible
- Review your internal guidelines on communicating with customers. In particular, check that the guidance on using image advertising is clear and complies with the FSA's criteria
- Consider whether new media channels are an appropriate way to communicate with your customers. They may be more suitable for some products than others. Websites like Twitter limit the number of characters that can be used. This may not leave enough space to provide balanced and adequate information or show the risks prominently and clearly in many circumstances
- Make sure all promotions and communications meet the requirements for "stand-alone compliance". This means that every financial promotion, regardless of its form, content, location or target audience, must comply with all of the relevant financial promotion rules. It is not acceptable for a firm to omit important risk information just because it intends to give it later in the sales process
Contact: Tim Dolan (020 7418 8259) firstname.lastname@example.org