The rules, which will come into force on 1 June 2004, will prevent firms 'cherry-picking' data to present their past performance in a flattering light.
Under the new rules:
* Where past performance information is used in advertisements, it must be accompanied by standardised data, set out in a table, showing discrete annual returns for the previous five years. These figures must be expressed as a percentage and will give consumers a better understanding of the volatility of the investment and how it has performed over a period of time.
* Where less than five years performance is available, then a firm should give information for as many 12-month periods as possible, updated to the previous quarter. Firms should indicate (using dashes or an explanation) where there is no information available for the 'missing years.'
* Where data is available for less than one twelve month period, past performance information may not be included. This is because a period of less than a year will not give a 'clear, fair and not misleading' impression of longer term performance. However, this information will still be available to intermediaries and professionals because only advertisements aimed at retail investors are covered by the FSA's advertising rules.
The standardisation measures form part of an overall package aimed at cleaning up the way in which past performance information is used in advertising. Other elements of the package include:
* improving the balance in advertisements by reducing the emphasis on past performance;
* strengthening the warning so that it appears in the main body of the advertisement, not buried in the small print; and
* preventing firms from making a link between past performance and the future.
Final rules and guidance are published in Policy Statement 183 - Standardising Past Performance: feedback on CP183 and come into force on 1 June 2004.
