This guide is based on UK law. It was last updated on 1st April 2008.
The provisions on financial promotions in the new Insurance Conduct of Business Sourcebook are short and to the point.
All firms communicating information, including a financial promotion, to a customer or other policyholder must take reasonable steps to do so in a way that is clear, fair and not misleading (2.2.2R).
This does little more than reiterate Principle 7. But by making it a rule, the FSA has ensured that individuals can sue for damages if the rule is breached.
Firms approving a financial promotion must meet the same standard (2.2.3R). And if a firm gives its sanction but later finds the promotion does not satisfy the clear, fair and not misleading test, it must withdraw its approval and notify anyone known to be relying on that approval as soon as reasonably practicable.
ICOBS retains guidance on pricing claims made in financial promotions (2.2.4G).
Claims that the firm can discount premium, provide the cheapest premium or reduce the cost to the customer in some other way must be consistent with the result "reasonably expected to be achieved by the majority of customers who respond, unless the proportion of those customers who are likely to achieve the pricing claims is stated prominently".
In theory, therefore, a savings claim could be aimed at less than half the target audience, provided it makes it clear what percentage is likely to benefit.
Pricing claims must also state prominently the basis for any claimed benefits and any significant limitations, as well as complying with any other relevant legislation – specifically the Control of Misleading Advertisements Regulations. These are due to be repealed on 26th May 2008 and replaced by the Consumer Protection from Unfair Trading Regulations 2008.
Adopting a principles-based approach has enabled the FSA to condense a whole chapter of ICOB into three rules and a guidance note. But in order to keep up to date with the required standards, firms will need to keep an eye out for more specific guidance and surveys published by the FSA from time to time.
For instance, in November 2007, following a 12-month survey of financial promotions on websites, the FSA published examples of good and bad practices. And following a review of sponsored links during October and November 2007, it is working with the OFT to produce a guide for firms who pay to advertise on websites via such links.
In order to make it easier for firms to monitor such developments, the FSA has set up a special financial promotions page on its website.
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See also: The Consumer Protection from Unfair Trading Regulations: an OUT-LAW guide