The FSA's review entitled 'Financial Promotions – Taking Stock and Moving Forward' comes almost 12 months after the FSA set up its dedicated division to regulate financial promotions.
The regulator will look at promotions produced by mainstream lenders, equity release providers, sub-prime lenders, debt consolidation lenders, and brokers for all of these providers; it will also examine mortgage networks' systems and controls. The FSA will also look at firms' preparatory work for child trust funds, and early work on general insurance will focus on the promotion of those products that it is believed may pose a relatively high risk to consumers, For instance those targeted at vulnerable consumers, or where unnecessary cover may be being sold using inaccurate or false claims.
Anna Bradley, the FSA's Director of Retail Themes, responsible for financial promotions, said:
"Financial promotions are a high risk area for consumers as they play an influential role in the decision-making process. Promotions need to be clear, fair and not misleading as otherwise they may do no more than promote misunderstanding. It is essential that consumers get the information they need at this crucial juncture in the buying process. We are therefore calling on firms to ensure they address this information gap and help consumers make the right decision about the right product at the right time.
"As the recent disciplinary action against AXA, Cantor and Hemscott illustrates, real issues remain with firms' systems and controls, and recent monitoring has shown that there is much to do in encouraging some firms to comply with our rules. We want firms to consider whether their promotions provide a balanced picture of the product or service, whether the marketing matches what the product or service delivers, and whether the promotions will be easily understood by customers."
The FSA's financial promotions work in the last nine months has resulted in a number of enforcement actions including private warnings or the imposition of a financial penalty. The most recent include:
- Axa Sun Life was fined £500,000 for producing misleading promotions which did not provide customers with sufficient information about how the product worked or the risks involved. The design, content and format of the promotions focused attention on the benefits of the products including the offer of free promotional gifts, but gave less prominence to key information about the risks. Some of the advertisements also included comparative data that was inaccurate.
- Cantor Index was fined £70,000 for running a misleading campaign promoting spread betting. The company's senior management failed to ensure there were adequate systems and controls in place to ensure that its promotions were systematically monitored, which led to some promotions being issued without adequate risk warnings.
- Hemscott Investment Analysis was fined £50,000 for the production and distribution of misleading financial promotions. A promotion using the slogan "We even make a bear market all soft & cuddly" had completely by-passed Hemscott's approval procedures and selectively quoted past recommendations by the firm, using only the best performing recommendations rather than a cross section of all recommendations. This provided a distorted picture of the firm's service.
We have reviewed many promotions across a wide range of media during this period. Of the cases we have looked at, we are pursuing 162 of them with the firm involved. In addition, in 44 of the cases we have concluded, we asked the firm concerned to amend the publication. In a further eight cases, we asked the firm to contact customers who had bought the product, offering them the opportunity to withdraw at no cost if they thought that they had been misled. We decided to take no further action in 64 cases. As well as our general monitoring, we concentrated on some specific areas, which resulted in follow up casework, including:
- websites – 30 reviewed, resulting in six cases;
- television and radio promotions – 20 reviewed, resulting in five cases;
- direct mail promotions – over 50 reviewed, resulting in 14 cases;
- branch leaflets – 30 reviewed, resulting in two cases; and
- promotions for Guaranteed Equity Bonds – 20 reviewed, resulting in four cases.
We have carried out a total of 16 visits. Of these, three were general fact-finds or were conducted as part of our usual supervisory visits. We visited seven firms as part of our thematic work on spread-betting and equity contracts for differences; six firms were visited as part of our thematic work on Child Trust Fund providers.
