Change Needed, says Task Force on Past Performance

In response, the FSA is today announcing a three-point plan designed to improve the way in which past performance data is presented to consumers. It proposes:

• To intensify scrutiny of the presentation of past performance information. Current guidance - stating that past performance should not be seen as an indicator of future growth becomes a rule in December.

• To introduce new rules to strengthen advertising standards in this area and clamp down on misleading claims ; and

• To assess the feasibility of standardising the use of past performance, risk and price information in advertisements.

Christine Farnish, Consumer Director at the FSA and Chair of the Task Force, said:

FSA action to address the Task Forces recommendations will begin immediately and we will open up a dialogue with all interested parties on how we can build on the existing safeguards.

We will consult on proposed changes to regulatory rules and guidance and do further work on the feasibility of standardising information on past performance, risk and price.

The Task Force has drawn on the results of its own specially commissioned research to recommend changes to the use of past performance in advertising that would enable the FSA to reduce further the risks that consumers are misled by this information.

Recommendations for change focus on three key areas: the policing of rules when the FSA assumes its full powers in December; changes that could be made to the regulatory regime to raise advertising standards; and developing a new approach to the standardisation of past performance information.

A summary of the detailed recommendations and the FSA's response to them is attached. The full report and the findings of research commissioned by the Task Force are available at www.fsa.gov.uk

SUMMARY OF TASK FORCE RECOMMENDATIONS AND FSA RESPONSES

Topline result

• No ban on past performance information in advertising, but better control on its use
  
  FSA response: We accept the fact that past performance figures constitute factual information which consumers want and firms regard as an important marketing tool. However, we believe there is more we can do to ensure that the information is not used in a way that is unfair, unclear or misleading.

1. Policing the existing rules

• Review the new Conduct of Business Sourcebook and establish what changes in supervisory practice will be appropriate at N2

FSA response: We are reviewing our supervisory approach in this area. We will shortly be highlighting to firms the points relating to the use of past performance information in advertisements to which we will be paying particular attention.

2. Changes to the current regulatory regime

• Past performance should not be the main message of an advertisement
  
  
• Past performance warning should be presented clearly and legibly in the main text of the advertisement

• Ban practice of constructing hypothetical past performance based on information other than that based on the actual performance of a fund
  
  FSA response: These are fair conclusions, given the current concerns about the impact of past performance information and its misinterpretation by consumers, especially in the light of the shift to a low inflation environment. We intend to take these recommendations forward and consult on proposals to amend our rules and guidance as soon as resources and priorities allow.
  
  

• Develop a model to indicate performance, price and risk in a simple (possibly symbol-based) and effective way in advertisements
  
  FSA response: We agree in principle that a more standardised approach could improve transparency and help consumer understanding. The Task Force has however recognised that there are many issues to be resolved before single standard measures could be arrived at for presenting past performance, risk and price. We are therefore planning a series of projects to take this work forward. In doing so we would be interested to hear of any relevant work that is in hand elsewhere.
  

Notes for editors

1. The Past Performance Task Force was convened by the FSA last Autumn. Chaired by Christine Farnish, FSA Consumer Director, the members included:

   Roger Cornick	Perpetual
   John Hylands	Standard Life
   Peter Lunt	Department of Psychology, University College,London
   Mick McAteer	Consumers Association
   Janet Walford	Money Management
   Roger Wisbey	Advertising Standards Authority
   David Watts	Consumer Panel member
   Clive Baldon	(Secretary) FSA

2. New photographs of Christine Farnish are available from www.newscast.co.uk search under FSA.

3. There is an ISDN line available for interviews call the FSA press office on 020 7066 3232 to arrange.

4. The Task Forces terms of reference were:

• To assist the FSA in its review of the use of past performance data in the promotion of financial products and services.
• To review current promotions and advise the FSA on which issues / areas the FSA should focus on in respect of potential consumer detriment.
• To advise on the scope and conduct of consumer research to test how advertisements influence consumer understanding of past performance and whether its use is considered to be 'clear, fair and not misleading'; and to review research findings.
• To consider the desirability and feasibility of a standard approach to the use of past performance data that is fair to firms and not anti-competitive but which minimises the risk of misleading consumers, and if so what that approach should be.

5. The Task Force commissioned The Research Business International to conduct research into consumers attitudes to financial advertising as well as the industrys views. The results are annexed to the Task Forces report which can be found at www.fsa.gov.uk

6. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

7. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.