FSA stamps on misleading adverts

The updated complaints data, published in the FSA's third financial promotions bulletin, shows that:

• the FSA ordered changes to be made to 73 advertisements from 63 separate firms;

• in five cases the advertising was so poor that the FSA advised firms to write to investors explaining the risks associated with the products more carefully and offering them the chance to pull out at no cost;

• on 17 occasions action taken by the FSA was a direct result of complaints received from consumers; and

• products which caused the most common complaints were precipice bonds (income producing structured capital-at risk-products); spread betting; share tipping; and pension unlocking products.

Anna Bradley, FSA Consumer Director, said:

"We continue to receive a steady flow of complaints about misleading advertising - from consumers, firms and our own supervisors - and we take action immediately to stamp it out.

"Some of the things that we will be watching out for this ISA season are that risks are clearly explained and that past performance is used appropriately. We also want to see adverts that make clear the impact of forthcoming tax changes on products in an ISA wrapper. Our latest consumer bulletin includes useful tips on what to look out for in the current crop of adverts."

In addition to its routine monitoring, the FSA has also looked at regional newspapers and daytime television advertisements. Where regional adverts fell within the FSA's remit (it excludes mortgages and loans), there were no serious problems. However, a review of daytime television identified a handful of adverts that fell short of the rules and the FSA is now considering enforcement action over two commercials.

Strengthening rules on SCARPS

The advertising rules for SCARPS (structured capital-at-risk products) and structured deposits have been strengthened to help consumers better understand the product being offered and the risks involved. In particular, the FSA has produced a new factsheet on capital-at-risk products which helps consumers put SCARPs into context with other capital-at-risk products. Prior to this the FSA had produced a High Income factsheet but this did not include growth products.

Providing the new capital-at-risk fact sheet with direct offer mailings is one way firms can ensure consumers get the necessary generic information on risks. Firms will also have to issue an annual statement providing investors with a 'snapshot maturity value' of their SCARP investment.

The rules and guidance relating to income producing SCARPs (e.g. precipice bonds) will come into effect on 20 February 2004 and the remaining provisions will apply from 16 July 2004. These rules and guidance carry forward and extend the scope of Guidance Note 7 which was issued in February 2003.

Notes for editors

1. The FSA is significantly increasing the resources it commits to regulating financial advertising and is setting up a new department to lead this work. For more details see the FSA's Business Plan (page 23).

2. If you think you have spotted a misleading advertisement please let us know here or write to: Financial Promotions Team, Consumer Division, FSA, 25 The North Colonnade, Canary Wharf E14 5HS.

3. Feedback to CP 188 and final rules relating to 'structured capital at risk products' (SCARPS), structured deposits and additional financial promotion guidance are set out in policy statement 04/03.

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; the protection of consumers; and fighting financial crime.

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