The financial promotions regime
This section gives an overview of the rules and guidance that make up the financial promotions regime and how we regulate it. It explains what a financial promotion is, and why it is so important that they are fair, clear and not misleading.
What is a financial promotion?
A financial promotion is a communication that is an invitation or an inducement to engage in investment activity.
In other words, there is an element of persuasion. A communication that merely informs or educates will not normally be a financial promotion. An inducement is intended to lead, ultimately, to an agreement to engage in investment activity. So an advertisement by a firm claiming customers will make a fortune by investing in securities, and that the firm can help them invest, is an inducement to engage in investment activity.
We define the term 'engage in investment activity' and it may not include some activities thought of as financial services. For instance, financial services price comparison websites are not financial promotions (unless they promote particular products or services) because simply comparing prices is not an investment activity.
Financial promotions can be communicated through a number of means, such as:
- product brochures;
- general advertising in magazines, newspapers, radio, TV and websites;
- mailshots;
- written correspondence; and
- sales aids.
Importantly, our rules apply across all media. When deciding whether a communication is a financial promotion, we look at whether it is an 'invitation or inducement to engage in investment activity', not the way it is communicated.
Non-promotional communications to clients
It is important to realise that our rules cover all communications by regulated firms to clients, not just promotional ones. This includes, for example, annual statements, responses to queries, complaints or general correspondence. In line with our risk-based approach to regulation, the rules that apply to non-promotional communications are fairly high level. The main one is the rule that communications must be fair, clear and not misleading (COBS 4.2.1R).
Image advertising
Image advertising is a financial promotion that consists of only one or more of the following:
- the name of the firm;
- a logo or other image associated with the firm;
- a contact point; and
- a reference to the types of regulated activities the firm provides, or its fees or commissions.
Most of these rules do not apply to image advertising. However, the fair, clear and not misleading rule always applies. Firms should also ensure that, for MiFID-scope business, financial promotions are clearly identifiable as such (COBS 4.3.1R).
What does 'engage in investment activity' mean?
The term 'engage in investment activity' refers to 'controlled activities' and 'controlled investments'. This generally includes firms that provide or advise on the following products:
- stakeholder pensions;
- personal pensions;
- investments such as:
- bonds or gilts;
- shares/stock in a company;
- units in collective investment schemes;
- endowment plans;
- options, futures and contracts for differences;
- individual savings accounts (ISAs);
- stakeholder and non-stakeholder investment child trust funds; or
- funeral plan contracts;
- cash savings and bank accounts;
- insurance such as:
- household and motor;
- travel;
- payment protection or critical illness;
- private medical insurance; or
- extended warranties (but not general insurance mediation services);
- most mortgages and other home finance products.
