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Briefing Note 026/06
1 August 2006

The Financial Services Authority (FSA) today published a report detailing its financial promotions work over the last two years, including an evaluation of industry progress and an outline of future plans in this area.

The FSA evaluated nearly 1,000 financial promotions to assess industry progress during this period. While it found variations in standards across firms and different sectors of the market, on the whole there has been a drop in the number of promotions regarded as high risk to consumers.

The number of investment promotions which fell below regulatory standards had dropped from 52% in 2004 to 32% in 2006 but there had been only limited improvements in the general insurance and sub-prime mortgage sectors. Standards need to improve further and senior management need to put robust systems and controls in place to ensure consumers are treated fairly.

The FSA will continue to carry out work on financial promotions for investments, insurance and mortgages using the full range of regulatory tools available. Some of the higher risk areas it will focus on include direct mail, internet promotions, mortgage brokers, spread betting and venture capital trusts.

As part of its work over the last two years, the FSA looked at 4500 promotions across a wide range of media and used a range of regulatory tools to identify and tackle problems. It pursued more than 820 cases directly with firms where promotions fell below regulatory requirements, while others were taken forward as part of thematic work. It visited 55 firms to assess their systems and controls, intervened directly with firms to change or withdraw promotions and where appropriate, initiated enforcement action.

Some areas for senior management to consider when assessing systems and controls;

  • Financial Promotion strategy – who is responsible for determining strategy and to what extent is this overseen by senior management?
  • Treating Customers Fairly (TCF) – how is TCF taken into account in the design of the financial promotions?
  • Approval procedures – to what extent do those signing off promotions challenge the promotions to ensure they are appropriately balanced and are also clear, fair and not misleading?
  • Relationship between marketing and compliance functions – how is this relationship managed and how are the needs of the business balanced against achieving fair outcomes for consumers?
  • Management Information – what MI is produced on financial promotions? To what extent do firms use this to help identify emerging risks and to take any necessary remedial action?
  • Training and Competence – how is training of approvals staff structured and how are they assessed both initially and on an ongoing basis?

Vernon Everitt, FSA Retail Themes Director said:

"We continue to see variations in standards across different sectors, but overall we have seen improvement over the last two years. The marked reduction in advertisements presenting a high risk to consumers is particularly encouraging.

"But we must see further progress. Responsibility for ensuring that customers are given clear and straightforward descriptions of financial products and services lies squarely with the senior management of the firms selling them. So while our shift away from detailed rules towards a more principles-based approach will allow firms the freedom they need to market effectively, senior management also needs to put in place the right checks and balances to ensure that customers are being treated fairly."

"We will continue to be proactive in areas presenting a material risk to customers and in raising standards more generally. And, of course, we will work constructively with the industry to deliver the further improvements that are needed."

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Note to editors

  1. The full progress report - Financial Promotions: Progress update and future direction can be found on the FSA's website.
  2. Regulatory requirements for financial promotions are rooted in Principle 7 - A firm must pay regard to the information needs of its clients, and communicate information to them in a way which is clear, fair and not misleading. It relates to the outcome to be achieved, rather than prescribing how that outcome is to be achieved. Other principles are also relevant.
  3. In 2005, the FSA fined firms nearly £1.4 million for breaching financial promotions rules.
  4. 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; securing the appropriate degree of protection for consumers; and fighting financial crime.
  5. The FSA aims to promote efficient, orderly and fair markets, help retail consumers achieve a fair deal and improve its business capability and effectiveness.

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