FSA takes action on poor advertising

Analysis also shows that:

• In 82 cases, the FSA got firms to change or withdraw their advertisements. And in 25 of those cases, FSA action was a direct result of complaints received from consumers.

• On 8 occasions, the FSA got firms to write to their customers and point out that they had not made the risks clear enough in the initial advert. Three of these cases were triggered by members of the public.

• The products which caused the most common complaints were equity ISAs; income and growth plans, such as structured capital-at-risk products; pensions; and capital-protected products.

• The most common source of misleading advertising was the national press, followed by direct mailshots and websites.

Anna Bradley, Consumer Director at the FSA said:

"When you tell us about adverts that you think are misleading, we can take immediate action, usually by getting firms to change or withdraw the offending advert straight away. But on eight occasions the adverts were so poor that we also insisted firms write to customers who had already responded, offering them their money back.

On four of those eight occasions, the adverts were for products offering some sort of capital protection. While these products might appeal to investors who only want to dip a toe in the stock market, they can be quite complex. So weve set out some useful tips on our website which highlight how they are structured, the risks involved and what to look out for in the advertising. Were also going to strengthen the advertising rules on these, and other structured products, to ensure that firms do a better job of telling you what you need to know to make an informed decision."

As a general rule, the FSA requires advertisements to be clear, fair and not misleading and they should, crucially, present a balanced picture of a product. The onus is on firms to ensure their adverts meet these standards the FSA does not pre-vet adverts.

Further improvements to the advertising rules relevant to structured capital-at-risk products (known as SCARPs and including precipice bonds) and structured deposits are proposed in Consultation Paper 188, published today. It contains proposals that should make it easier for consumers to understand the products offered and the risks involved. For example, where consumers stand to lose some, or all, of their money, firms should spell this out clearly. The advert should also include enough information for investors to be able to work out what their chances are of losing their capital.

Case study complaint about advert for capital-protected product

A consumer wrote to the FSA about the promotional material for a capital-protected product issued by a well-known product provider. The product was mostly sold through a large firm of independent financial advisers who used a mailing list to target investors.

After taking a closer look at the promotional material, the FSA found out that investors money was not actually held by the product provider. Instead, it was used to buy shares in an off-shore investment company located in Dublin. Also, the FSA was concerned that the IFAs material implied that returns on the advertised product would be as secure as those on a deposit account.

The FSA decided that the promotional material did not meet its requirements to be clear, fair and not misleading and to present a balanced picture of a product. As a result, the firm wrote to all investors (219) clarifying the risks involved. 25% of investors (50) withdrew from the product and 317,000 was paid back to them.

For more information on what to look out for in adverts for capital-protected products see the FSAs second consumer bulletin.

Notes for editors

1. To report an advert you think is misleading, you can either use the FSAs online reporting form or write a letter and enclose a copy of the advert to: FSA Consumer Contact Centre, 25 The North Colonnade, London E14 5HS.

2. Structured capital-at-risk products (SCARPs), which includes products previously described as precipice bonds in Guidance Note 7 (see press notice 26), provide a specified level of income or growth over a fixed investment period but do not guarantee the return of the initial capital. They are not derivatives, but may involve gearing. Proposals contained in CP 188 will translate the guidance contained in GN7 into rules.

3. Structured deposits return the initial capital deposited at the end of the investment period; but any interest or financial return on the investment is linked by a formula to the performance of a share index, a combination of indices, or a stock or basket of selected stocks (typically from an index or indices). The customer may receive no interest or financial return on the deposit.

4. CP 188 Clarification and revision of financial promotions Rules and Guidance is published at www.fsa.gov.uk/pubs/ The FSA welcomes responses by 31 October 2003.

5. 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 of consumers; and fighting financial crime.

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